There Will Not Be A Global Recession - Do Not Panic. But Malaysia Is A Different Story ...

Here are the latest oil prices :

West Texas is at US$26 per barrel and the "champagne brand" Brent is at US$28 per barrel. Both have slipped below US$30 per barrel.

This is fantastic news for the world economy. Can you imagine the amount of savings that will accrue to global production costs with such low energy prices ?

Interest rates all over the world are also plummeting. Again this is fantastic news. 

Borrowing costs will decrease substantially. As I said earlier (or did I?) after the rate cuts our monthly bank installment payments got reduced by just over RM200 per month. That's almost 4% less monthly payment.  Folks, that's a lot of savings for businesses.  Especially if you owe say RM6.0 Billion or RM2.6 Billion. 

So don't worry. With savings like this, there is much less danger of a global recession.

Take the last "downturn" in 2008? (There have been so many.)  
That time neither oil prices nor world interest rates adjusted as much downwards. 

This time the oil prices and interest rates have both plunged.

Do lower oil prices and lower interest rates cause recessions? 

Dalam buku ekonomi tak ada cakap macam itu lah.

The Corona Virus is an 'external' trauma. It is not similar to any usual economic reasons that can cause a recession (inflation, high oil prices, high interest rates, drop in productivity,  property 'bubbles',  not enough bank credit facilities and stuff like that - yes I know it is highly arguable.)

Of course if the shutdowns, lockdowns etc persist for months or a full year (which it will not - let me assure you) yes there will be a significant drop in demand that will cause an economic slowdown. Growth will be affected and decreased growth or no growth can lead to a recession.  

But as I said - this is 'external' trauma. 

Lets say you have to postpone your son's wedding (and did not spend RM100,000 this month). It does not mean that you still will not spend that RM100,000 once the virus attack is over. You will  spend that money a month or a few months later. You will just postpone your spending.

The problem is if the virus persists long enough that it drains out enough of your money during the waiting out period - then you will have less money to spend later. So that could be a problem. But we do not know that yet. It is likely the virus will blow over in a few months.

Yes demand and supply are being negatively impacted now but this virus does not reduce the productive "capacity" of the global economy.  Neither will it dampen the "need" for goods and services. 

This virus has not caused price inflation (actually prices should be going the other way). 

What we do not want is a drop in demand for goods and services - which can create deflation / stagflation. For various reasons people just do not want to buy things. That will be bad.

However for now the productive capacity of the global economy is constantly improving. 

The need for goods and services is still strong. 

With low energy prices and low interest rates things will get back on track in double quick time. That is the global economy.

Now coming to Malaysia - I am afraid we are NOT going to recover as fast.

1. Thank Allah the dumb GST has been abolished. The GST killed off the economy. Despite 20 months after abolishing it the economy is still suffering the negative effects of the GST.  You tortured businesses for FOUR years and you cannot expect them to recover instantly. 

Now there is talk about bringing back the GST at 3%. 

Trust me the people who are suggesting this do not know what they are talking about. 

A simple 3% GST involving THREE NODES in the distribution system (manufacturer to wholesaler to retailer) WITH ZERO PROFIT MARGIN yields the following :

RM100 + 3% GST = RM103.00

RM103 + 3% GST = RM106.00

RM106 + 3% GST = RM109.00

That is a NINE PERCENT price inflation !! 

WITH ZERO PROFIT MARGIN ADDED. 

SIX YEARS ago (before the GST) when I first did this simple calculation the morons laughed at me. Then when the morons hit the economy with 6% GST the prices went up as much as 30%.  Have you morons forgotten? 

That so called net off this, net off that went up your arse.

The customer had to pay the price increases first.

Those net offs never happened. 

2. Now the Minimum Wage of RM1200 a month is killing off businesses.

The government has absolutely no idea what I am talking about.

Because none of them have run any businesses especially SMEs.

Believe me the Minimum Wage is killing off the economy.

The petrol station in Kuala Nerang does not make enough money to afford paying the 17 year old school dropout RM1200 a month. 

So the petrol station will not hire many or any workers. 

Unemployment will increase. It has increased.

Those businesses which have no choice and must hire Minimum Wage workers will suffer higher labour costs with no increase in output and productivity. Their profit margins will become thin. They will go out of business, postpone expansion plans, suffer losses etc. Less growth in the economy.

3. The monopolies and oligopolies in the economy have strangled competition and new wealth creation.  There are no more new areas of economic growth because the monopolies and oligopolies block off so many types of new entrants in the economy. 

4. The biggest blockhouse is of course banking and finance. One Monyet Sewel suggests that the few banks that we have be merged even further. 

Nauzubillah. These people are closet communists - they really do not believe in free markets and competition. 

There is ketuanan type talk that CIMB (of all the inefficient banana plantations in the country) will take over Public Bank and Hong Leong. This is not true. It is not even fake news. But this talk (it is going around) reflects the type of dreaming that some people have. 

We must liberalise banking and finance in Malaysia. Put back the system that we had before that stupid mamak promoted the bank mergers. 

5. Petronas will suffer quite badly this year and in the years to come. That US$26 per barrel will cost Petronas dearly. This means the government will also lose plenty revenue. 

So tuan-tuan, Malaysia will not grow anymore. Or maybe  a 2% or a 3% growth.  

With 2% or 3% growth, when you nett off inflation you can get negative growth.  
Say growth is 2% this year and inflation is 4% that means net growth is minus 2%. 

What happens if net growth is minus 2%? Apa maksudnya? 
Maksudnya anak-anak Tuan-Tuan yang belajar engineer di university boleh jadi Grab Food Delivery boy. 

Why? Pasal apa?

Sebab kilang baru tak ada.

Sebab usahawan Cina susah dapat pinjaman daripada finance company, bank dsbnya untuk buka kilang baru. 

Tuan-tuan nak tunggu GLC buka kilang?

Elok pi nyanyi lagu baru 'Mengawan Solo'. 

Dengan monopoli depa bankrap.

Dengan AP depa bankrap.

Dengan kuota depa bankrap.

Dengan apa pun depa bankrap.

Takpelah kalau anak-anak Tuan-tuan terus jadi Grab Food boy.

Mungkin itulah rezeki mereka.

Mungkin itulah takdir mereka.

Biarlah rezeki orang lain dan takdir orang lain, lain pula. 

Back to the point I am making - there will not be a global recession because of this Corona Virus. I don't think so. 

The world will recover fast from this unexpected shock effect.

Malaysia will not. 

Unless you listen to yours truly. 

Allah swt created the free market. 
The free market is part of the natural system. 
It is a bayt or system.
Mess with the free market and you become poor.