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Wednesday, August 15, 2018

BAD NEWS FOR MALAYSIANS – RECESSION BY END OF THIS YEAR OR NEXT AT LATEST: IS AZMIN UP TO MARK TO DIG NATION OUT FROM NAJIB’S HOLE?

KUALA LUMPUR – Think tank IDEAS agrees with the prediction by Bank Islam Malaysia chief economist Dr Mohd Afzanizam Abdul Rashid that Malaysia could face its first recession since 2009 by the end of this year or the next, but does not agree with his solutions.
IDEAS senior fellow Carmelo Ferlito said Afzanizam’s prediction of a recession was consistent with the possibility of a property market-driven crisis.
Afzanizam was reported as advising the government to loosen up on monetary policy and expand fiscal policies to fuel economic growth. Among his suggestions were reducing the Employees Provident Fund members’ contribution to promote consumer spending and tax cuts to ensure gross domestic product growth.
Ferlito, however, did not agree with Afzanizam’s suggestions of easing the monetary policy and introducing fiscal stimuli to support consumption.
“The business cycle is the natural dynamic of capitalistic development. Most of the booms are generated or enhanced by credit support. If the government further injects liquidity in the economy, it will only delay the necessary readjustment process of the business cycle.
“The best way to support sustainable growth and to face the recession is to recognise the crucial role of long-term investment projects and the need for them to be financed with sound money rather than easy credit,” Ferlito said.
The logical conclusion, he said, was to support savings, rather than artificial credit and consumption, to generate “real funds” for long-term investment projects.
“Besides the support for long-term investments, another counter cyclical move may be to gradually reconsider indirect taxation, such as GST or sales and services tax. Therefore, rather than a simple tax cut, I suggest more comprehensive tax reform which favours indirect tax collection to prepare the economy for the upcoming recession.”
– FMT

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