[ BIZ NEWS ] Recession? No, not this year

Post Reply
User avatar

Topic author
NakedWife
Site Admin
Site Admin
Posts: 247
Joined: Fri May 01, 2015 11:29 pm
Status: Offline
Australia

[ BIZ NEWS ] Recession? No, not this year

#1

Post by NakedWife » Sat Jan 26, 2019 8:57 pm

Image



THE influential International Monetary Fund (IMF) has predicted slower global growth this year on the back of financial volatility and the trade war between the United States and China.

Turkey and Argentina are expected to experience deep recessions this year before recovering next year.

China, apart from fighting the trade war, is also experiencing its slowest quarterly growth since the 1990s, sending ripples across Asia. In the last quarter of 2018, China recorded an economic growth of 6.4%, which is the third consecutive quarter of slowing growth.

This has led to fears of China’s economy going into a hard landing and it possibly being the catalyst to spark global economic turmoil.

However, the economic data so far does not seem to suggest that the world will go into a recession or tailspin this year.

The bigger worry is what would happen next year.

The narrowing spread between the two-year and 10-year US Treasury papers would lead to banks being more selective in their lending. It is already happening in the US.

The impact is likely to be profound next year. When banks are more selective in lending, eventually the economy will grind to a halt.

But that is the likely scenario next year, assuming there is no fresh impetus to spur global growth.

At the moment, there is a significant amount of asset price depression due to slowing demand. The reason is generally because of the slower growth in China and the trade war.

China has fuelled demand for almost everything in the last few years. Companies and individuals from China drove up the prices of everything – from property and valuations of companies to commodities.

China itself is experiencing a slowing economy and the government has restricted the outflow of funds. Its overall debt is estimated at 300% of gross domestic product and banks are reluctant to lend to private companies for fear of defaults.

China’s manufacturing sector has slowed down because of the trade war. Companies are not prepared to expand because they fear the tariffs imposed by the US.

Nevertheless, the world’s second-largest economy is still growing, albeit at a slower pace. A growth rate of 6.4% per quarter is still commendable, although it is far from the 12% quarterly economic growth it recorded in 2011-2012.

The US, which is the world’s largest economy, is also facing slower growth this year. The Federal Reserve has predicted a slower economic growth of 2.3% in 2019 compared to the 3.1% the country recorded last year.

The ongoing US government shutdown is not going to make things easy.

As for Europe, the European Central Bank (ECB) has warned of a slowdown this year. The warning came just six weeks after the ECB eased off on its bond-buying programme that was designed to reflate the economy.

Business sentiments on Germany, which is a barometer of what happens to the rest of Europe, is at the lowest.

As for Malaysia, the country is going through an economic transition of sorts following the change in government. Government spending has traditionally been the driver of the domestic economy when global growth slows.

The new government has cut back on spending, which is a necessary evil, considering that many of the projects awarded previously were inflated. Generally, the cost of most projects is to be shaved by at least 10% – and some by up to 50%.

However, the projects with revised costs have not got off the ground yet and contractors have not been paid their dues. For instance, contractors in the LRT 3 project had complained of not getting payments for work done a year ago.

Fortunately, a new contract for the LRT 3 has been signed. Hopefully, the contractors will be paid their dues speedily and work recommences on the ground fast.

The volatile oil prices are not helping improve revenue for the government.

Domestic demand is still growing, although people complain of their income levels not growing. This is because companies as a whole are also not doing as well as in previous years.

Nevertheless, even the most pessimistic of economist is looking at Malaysia chalking up a growth rate of more than 4.5% this year, which is respectable. The official forecast is 4.9%.

One of the reasons for the optimism is that they feel government revenue is expected to be much higher than expected, giving it the flexibility to push spending if the global economic scenario takes a turn for the worse.

According to the Treasury report for 2019, federal government revenue is to come in at about RM261bil, which is 10.7% higher than in 2018.

The amount is likely to be much higher, allowing the government the option to put more money in the hands of the people. It also allows the government to reduce corporate taxes, a move that would draw in investments.

Malaysia has a new government in place. What investors are looking for are signs of where all the extra revenue earned will go. They are also looking for the next growth catalyst.

The trade war and financial volatility is causing structural shifts in the global economy. It is impacting China, the US and Europe.

Eventually, the global crunch will come, but it is not likely to happen this year.







source: https://www.thestar.com.my/business/bus ... KPMBXL5.99







.



Forexmart