'Slower economic growth, yes - not recession'

A political economist has defended the Pakatan Harapan government’s moves to rush reforms, saying that Malaysia would not be slipping into a recession despite slower growth.

Malaysian Institute of Economic Research (MIER) senior research fellow Shankaran Nambiar said raking up the 1MDB scandal, exposing BN's failed ventures, and discontinuing projects that made little economic sense were all part of Harapan’s “damage control mode”.

In saying this, he refuted views that the move to rush policy reforms may trigger a backlash to the government or lead to economic recession. 

"It (Harapan) has to establish its right to exist. Having done that, I would expect the government to switch into a more pro-active mode towards the close of the year or starting next year.

"You can't discount the massive build-up in expectations, both from consumers and producers.

"This has been captured by MIER’s consumer sentiment index and business confidence index. This is a huge plus.

“The people will be looking to the forthcoming Budget for the finance minister’s deftness.

"It's a bit soon to anticipate what the government's going to do. The Budget that will be released in November will give a clearer picture.

“Neither can you prematurely decide that the government is not going to introduce any policies to revive the industrial or services sectors," he said.

Shankaran also disagreed with Bank Islam Malaysia chief economist Mohd Afzanizam Abdul Rashid, who warned that Malaysia would be sinking into its first recession in 10 years by end-2018 or next year.

The Star quoted Mohd Afzanizam as citing the current bond yield curve, and that he believed the next economic downturn is oncoming.

He was also quoted as urging the government to cut taxes, aside from easing the monetary policy.

Afzanizam's views were supported by think tank Ideas senior fellow Carmelo Ferlito, who was quoted by Free Malaysia Today as saying that the former's prediction of a recession was "consistent with the possibility of a property market-driven crisis.”

Switch to SST vital for economy restructuring

Shankaran admitted that there may be some factors that are not conducive for growth, for example the switch from the goods and services tax (GST) to the sales and services tax (SST).

However, he added that while the move might mean some costs for small and medium enterprises (SMEs) and the SST might not bring in the kind of revenue that the GST did, it was a necessary cost of restructuring the economy.

He said that the GST is theoretically a more efficient tax but it came with problems, such as traders who used it as an opportunity to increase prices while the implementation was faulty, leading it to being perceived as the cause of all price hikes.

"The SST comes with a high threshold, freeing many SMEs of the burden of taxes. This could encourage SMEs.

"I'm sure the Finance Ministry will think of other ways of raising tax revenue. This will eventuate as the government gains more confidence.

"The government can be expected to be careful not to throw the burden of these new revenue-raising measures on the B40 group."

"Then, there's a cut back in projects and infrastructure investment, this might mean a reduction in multiplier effects.

"Another negative is that some of the contingent liabilities might crystalise to balance sheets. This will increase government debt,” quipped the author of Malaysia in Troubled Times.

For an economy that's presently domestic-driven, Shankaran said the overwhelming confidence that businesses and households have in the economy is going to be a big boost to the economy.

"I would expect slower growth, but surely not a recession,” he reiterated. - Mkini