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Wednesday, October 19, 2011

MIER’s take on economy stabs Najib’s budget

The government's misplaced economic optimism is based on external demand. What if we don't sell?

Never in our history, has a credible research organization such as MIER come out immediately after the budget to cast doubts as to the veracity of the finance minister’s numbers.

Where did those numbers come from?

MIER has revised Malaysia’s growth rate to below 5% throwing doubts over the Finance Minister’s claims that our growth rate will be around 5-6%.

MIER said domestic growth is not sufficient to counter shrinkage in external demand, confirming in part IMF (International Monetary Fund) reports that slowdowns of economic growth in Europe and USA will have contagion effects where funds will be taken out of Asian economies.

Were these developments not taken into account when budget 2012 was being prepared?

Was this element left out when the Finance Minister-cum Prime Minister Najib Tun Razak quoted IMF in his speech?

See? Our economic optimism is based on external demand.

External demand pushes up our exports. If other economies face problems, they reduce their imports.

‘What if we can’t sell?’

Our other major export earnings from the sale of oil is another problem area.

Other countries buy our oil but if we cannot sell as much export as we want and the price of oil drops, then our income will be greatly reduced.

We don’t have a large domestic market.

If the high impact projects do not take off as planned, no money will be going into the market.

The RM4 billion plus that’s going directly into consumers is not going to create much impact as it can be reasonably expected.

What will happen is that the money will be used to satisfy deferred spending.

That’s a substantial reduction in percentage points translating into large actual shrinkage in the economy.

Emerging realities

The income of the country will be lower than projected and the country will grow at a rate less than stated.

Producers will cut back because those entire one-off handouts or large portions are being used to satisfy deferred consumption and clearing old inventories.

And new demand is too weak to stimulate production.

Domestic demand is cut back as is external demand because each economy in the world is caught out in its own recessionary phase.

These are the realities possibly emerging independent of the PM’s recent budget projections.

The writer is a former Umno state assemblyman and a FMT columnist.

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