Stop painting rosy picture of economy, Putrajaya told

No number of policy tweaks will stop people from spending less next year, says economist Barjoyai Bardai.

PETALING JAYA: An economist has urged the government to stop trying to prop up the weakening economy with initiatives that he says are unproductive.

Speaking to FMT, Barjoyai Bardai of Universiti Tun Abdul Razak said one such initiative was the decision to reduce the statutory reserve requirement.

“Investors know what lies ahead for the economy,” he said. “They know a recession is coming and that won’t change no matter how rosy a picture we try to paint of the economy.”

Citing the Malaysian Institute for Economic Research’s Business Conditions Index and Consumer Sentiments Index for this year’s third quarter, he noted that business had been bad for many companies.

The two recently released reports point to a drop in sales, sluggish production volumes and a weakening job outlook and purchasing power.

Barjoyai attributed the weakening of sentiments mostly to global uncertainties, but he said Putrajaya could tweak some policies to boost its coffers.

He said the sales and services tax, for example, could be modified by adding provisions to curb the shadow economy and taking elements from the goods and services tax, such as by widening the tax base.

But he also said no amount of tweaking would prevent people from lowering their spending in the coming year, adding that such a trend would be part of what he called a “normal” economic cycle.

“Businesses will see a drop in demand, and once manufacturers and sellers feel the pinch, they will reduce their overheads and drop their prices.

“Once prices drop to a certain point, people will start buying again. It’s not whether it will happen, but when. The economy has to get worse before it can get better.”

Another economist, author Hoo Ke Ping, told FMT he did not believe a recession would come any time soon.

He spoke instead of an economic slowdown, saying the worst to be hit would probably be people in the middle income bracket.

“This is the group that spends and this is why the business sentiment isn’t good,” he said.

He noted that the poorer section of the public would continue to enjoy government support but many in the so-called M40 group would be paying unsubsidised prices for diesel and RON95 petrol next year.

“Naturally, they will reduce their spending. And this will hit businesses more, since most businesses cater to the middle-income group,” he said.

He also spoke of those in the M40 group as “the ones saddled with housing loans”, saying those owning more than one property would be hit especially hard because selling off the extra burden might prove difficult. - FMT