PETALING JAYA: The federal government should consider increasing its spending and reducing taxes as a way to counter a possible slowdown in the economy, according to a business lecturer.
Yeah Kim Leng of Sunway University Business School said recent reports of a drop in capital imports, the largest since 2009, suggested that there had been a slowdown in business investment and expansion.
Speaking to FMT, Yeah said a prolonged slowdown in investment would result in lower output and reduced business activities, he said.
The Bloomberg news agency reported that there had been a 31% drop in imports of capital goods, such as machinery and equipment used to produce goods and services, while imports of consumption goods fell by 12.8% compared to the same period last year.
The figure for August was the third consecutive monthly decline, compared to the same period last year. “It suggests that the slowdown in domestic demand is becoming more entrenched,” said Yeah. “There was a similar period of import weakness in 2015 but the current decline is slightly worse.”
While the slowdown may not be as bad as in 2009 when the economy was hit by the global financial crisis, it could cause households and businesses to be more careful with their spending, causing a decline in economic activities and job growth.
He said an increase in federal government spending could drive domestic demand, while lower taxes would boost the disposable incomes of homes and businesses. The government could also look to providing greater incentives to investors.
Lee Heng Guie of the Socio-Economic Research Centre also said the decline in the import of capital and intermediate goods may be a sign of lower domestic economic activities such as private investment, industrial production and exports.
The reduction in capital goods imports might indicate that investors were holding back, while intermediate goods are used as input for the production of goods either sold domestically or exported overseas.
He said the China-US trade war had weighed heavily on investment and business sentiment resulting in weaker demand for exports. “Domestic demand will have to be sustained to keep the economy going,” he said.
“Private consumption has been the key pillar of support, backed by a stable labour market and income growth as well as income-based measures such as the cost of living allowances.”
Lee said the 2020 Budget could provide initiatives such as mega projects and projects with high multiplier effects to help sustain domestic demand and reinvigorate private investment.