Don’t buck the coming recession, says economist

Exports have taken a beating because of the US-China trade war, says an economist.

PETALING JAYA: An economist says Bank Negara Malaysia’s recent move to cut the statutory reserve requirement of commercial banks will merely delay the inevitable, in the face of a looming recession.

The economist, Barjoyai Bardai of Universiti Tun Abdul Razak,said that at best, the cut in the reserves held by banks, from 3.5% to 3%, may lead to better market sentiments as it was expansionary.

However, he disagreed with Bank Negara’s decision.

“I think we are headed for a recession and the government should just let it happen.

“Policies like this only serve to delay the inevitable, it’s better to let the recession happen and introduce stimulation initiatives during the recovery process.”

Another economist Carmelo Ferlito, said the rate cut essentially allows banks to keep a smaller amount of reserves so that more money will flow into the banking system, be it through increased lending or investment activities.
The move has led ING to lower its forecast of gross domestic product growth from 4.7% to 4.5%.

Barjoyai said that the cut was a way to prop up numbers but would mean little to the people whether or not GDP growth targets were met.
He said recessions were a normal part of an economic cycle and the faster the country faced it, the faster it could recover.

Ferlito, a senior fellow at the Institute for Democracy and Economic Affairs said ING’s lowering of its GDP growth rate forecast was less concerning than the fact that GDP growth was coming from private consumption.

“We have seen a slowdown in private investments and exports, so the fact that the GDP is being supported by private consumption is not healthy as the structural part of the economy, namely private investments and exports are declining.”

Exports, he said, had taken a beating due to the US-China trade war and this affected other trading nations.

Putrajaya, he said, should pay close attention to private investments as local investors were clearly holding back from investing in setting up new businesses or expanding existing operations.

“The trade war can be an opportunity to attract investment and the government should focus on this.”

He added the government should also introduce incentives and schemes to boost the manufacturing sector and encourage industries to create added value from raw materials.