theSun | MONDAY DECEMBER 15 2008
speak up!
Unique challenges
in 2009
A SLEW of news
reports in disparate
countries, all released
last week, underscore
the unique challenges
policymakers
worldwide are likely
to face next year. Even
countries previously
believed to be immune
to the global economic
crisis have seen their
MakingSens
prospects darken
considerably. by Tan Siok Choo
In short, 2009 is
shaping up to be a year when
reality could exceed even the
worst expectations. This suggests
Malaysian policymakers should
be flexible, rather than dogmatic,
about stepping up government
spending, even if this means a
markedly higher budget deficit.
Last Wednesday, the US
Treasury Department said for the
first two months of the current
fiscal year that began on Oct 1 this
year, the federal budget deficit
totalled US$401.6 billion (RM1.4
Meanwhile, the Rhineland-
Westphalia Institute for Economic
Research said Germany could
find itself in the worst recession
in its history. In its latest report,
the institute said Germany’s
gross domestic product will turn
negative by 2% next year – a
marked contrast from its forecast of
0.7% positive growth announced in
September.
Additionally, the Munich-based
Ifo Institute for Economic Research
trillion) – almost says Germany will remain in
matching the US$455 recession until 2010. If the outlook
billion (RM1.6 trillion) for Germany, the anchor for
deficit for the entire the eurozone, is bleak, that for
2008 fiscal year. other eurozone countries will be
Budget experts indescribably sadder.
suggest the red ink Similarly, in an unusually
in fiscal 2009 could gloomy report, the World Bank
approach US$1 trillion said the world economy was on
(RM3.57 trillion). This the brink of a rare global recession,
US$1 trillion figure world trade will fall next year
doesn’t include the for the first time since 1982,
and capital flows to developing
US$500 billion (RM1.8
trillion) to US$700 countries could plunge by 50%.
billion (RM2.5 trillion) “We know that the financial
economic recovery package that crisis now is likely to be the worst
Congress is expected to pass early since the 1930s,” said Justin Lin,
next year. the World Bank’s chief economist,
Two reasons have been a comment that summed up what
advanced for the phenomenal lies ahead next year.
expanding fiscal deficit – the Two odd news items underscore
Treasury’s financial stabilisation the depth of investors’ fears. The
efforts and shrinking tax receipts. UK-based Independent newspaper
Since both trends are likely to noted the spreads on credit default
continue in 2009, it doesn’t take a swaps (CDS) suggest Britain
Nobel prize winner to realise that is more likely to go bust than
by end-September 2009, the current companies like McDonald’s and
puddle of red ink could be the fiscal Coca-Cola.
equivalent of the Pacific Ocean. CDS measures the cost of
insuring debt against the risk of
default. While CDS isn’t the sole
determinant of risks of sovereign
and corporate debt, the higher
spread for Britain supports
those who claim the country is
borrowing more than markets will
tolerate, analysts said.
More worrying is the perception
Britain is mortgaging its future
in a possibly pointless attempt to
reflate an economy that needs to
be downsized after a long credit-
fuelled boom, they add.
The International Herald
Tribune reported another quirk
– investors bought US$30 billion
(RM107 billion) of one-month
US Treasuries at zero yield. Even
more astonishing, demand was
so great the US government could
have sold four times more than the
actual offering.
This abnormality highlights
the shell-shocked stance of
investors – willing to forego yield
in preference for absolute security
of capital.
More depressing for Malaysian
policymakers, the perception that
countries like China and India are
immune to the global economic
crisis has been shattered.
China’s exports shrank last
month, the first decline in more
than seven years. November’s
2.2% drop in exports from the year
ago figure underlines how rapidly
China’s economy has deteriorated,
news reports say. In October,
China’s exports expanded by 19.2%
from a year earlier.
15
Even more dramatic was the
plunge in China’s imports – down
17.9% in November from a year
earlier. The erosion of imports
indicates weaker domestic demand
while the pullback in export orders
has wreaked considerable havoc
among China’s manufacturers.
Meanwhile, the global
slowdown has plunged India’s
high-tech companies and
outsourcing firms into negative
territory. Many of India’s
outsourcing companies like Infosys
derive two-thirds of their business
from the US while one-third comes
from financial institutions like
Citigroup.
“People think outsourcing is a
recession-proof industry. It is not,”
says Siddharth Pai, a partner in
Technology Partners International,
a consulting firm that publishes an
index of global outsourcing deals.
Pai says the index is at a 10-year
low.
That industrial powerhouses
as well as low-cost developing
countries have been caught
in the global economic crisis
suggests every country is possibly
vulnerable. For Malaysian
policymakers, complacency is a
word that should be deleted from
their vocabulary.
Opinions expressed in this article
are the personal views of the writer
and should not be attributed to any
organisation she is connected with.
She can be contacted at schoo@
noordinsopiee.com