Our little economy.
Lets talk about the Malaysian economy. I have been talking so much on politics, I forget that there are other important things like economy of a country. Malaysia suffered from 1998 currency crisis and compared to Indonesia and Thailand, Malaysia came out of the crisis unscathed. Is that really true? I would say that statement is partly true and partly untrue. It is true by saying that the Malaysian economy went through the crisis unscathed but it is not true by saying that we have come out of recession. The Malaysian economy has not yet totally recovers from the last recession and yet we are on a verge of another recession. All thanks to the government’s economic policy and the Americans.
We’ll talk about the Americans later because they only play a small role in this problem. Furthermore, we cannot blame others for our problems, can we? So, lets stick to the Malaysian government – the root cause of the current economic slowdown. The current government’s theme is to reduce budget deficit, which currently running at almost 5% of budget. According to World Bank, 5% budget deficit is not good and governments have to do something about it. The Malaysian government is trying to do exactly that by stopping government projects to reduce its spending in the economy. On the surface, this prudent spending by the government certainly looks good. I have absolutely no problem with this kind of spending attitude.
However, we all know that government spending is one of the components in economic aggregate demand and a reduction in government spending means lower aggregate demand. This means, the Malaysian economy is contracting. This is where I start to have problem with the government’s new spending habit. When the government first announced that they will try to reduce budget deficit, I was under the impression that they will try to boost aggregate demand by other means such as consumer spending and private investment but I guess, this was not the case. Along with the new policy of reducing spending, the government also announced to implement Government and Service Tax (GST) and increase the rate of interest. These two measures will in effect limit consumer spending and private investment. Hence, the question is, what is the government trying to do exactly?
Tax (GST) on goods and services will push the prices higher and will discourage consumer from spending (at least from a theoretical point of view). Increase in interest rate will not only reduce private investment but also consumer spending (spending on property and cars). And the recent hike in petrol prices and electricity tariff will further reduce consumer spending since they will have lower disposable income as a results of having to spend more on these necessities (petrol and electric).
Lower private investment will also reduce aggregate supply in the economy and this too is not a good thing because lower aggregate demand will also means a contracting economy. It doesn’t take a genius to see that with a reduction in both the aggregate demand and supply, the Malaysian economy is heading to another kind of recession. And I thought the ripple effects of the sluggish American economy is bad enough for Malaysia.
There, a short story on the current state of economy that should leave us with a lot of things to think about. Honestly, I still don’t see where the government is going with its current policy. I might be wrong in this analysis since I am after all just a first year university student, so anyone is free to make any comments and tell me where have I gone wrong.
“Economy is the method by which we prepare today to afford the improvements of tomorrow.” – Calvin Coolidge.
SOURCE: WorldBank.org, ThinkExist.com.
We’ll talk about the Americans later because they only play a small role in this problem. Furthermore, we cannot blame others for our problems, can we? So, lets stick to the Malaysian government – the root cause of the current economic slowdown. The current government’s theme is to reduce budget deficit, which currently running at almost 5% of budget. According to World Bank, 5% budget deficit is not good and governments have to do something about it. The Malaysian government is trying to do exactly that by stopping government projects to reduce its spending in the economy. On the surface, this prudent spending by the government certainly looks good. I have absolutely no problem with this kind of spending attitude.
However, we all know that government spending is one of the components in economic aggregate demand and a reduction in government spending means lower aggregate demand. This means, the Malaysian economy is contracting. This is where I start to have problem with the government’s new spending habit. When the government first announced that they will try to reduce budget deficit, I was under the impression that they will try to boost aggregate demand by other means such as consumer spending and private investment but I guess, this was not the case. Along with the new policy of reducing spending, the government also announced to implement Government and Service Tax (GST) and increase the rate of interest. These two measures will in effect limit consumer spending and private investment. Hence, the question is, what is the government trying to do exactly?
Tax (GST) on goods and services will push the prices higher and will discourage consumer from spending (at least from a theoretical point of view). Increase in interest rate will not only reduce private investment but also consumer spending (spending on property and cars). And the recent hike in petrol prices and electricity tariff will further reduce consumer spending since they will have lower disposable income as a results of having to spend more on these necessities (petrol and electric).
Lower private investment will also reduce aggregate supply in the economy and this too is not a good thing because lower aggregate demand will also means a contracting economy. It doesn’t take a genius to see that with a reduction in both the aggregate demand and supply, the Malaysian economy is heading to another kind of recession. And I thought the ripple effects of the sluggish American economy is bad enough for Malaysia.
There, a short story on the current state of economy that should leave us with a lot of things to think about. Honestly, I still don’t see where the government is going with its current policy. I might be wrong in this analysis since I am after all just a first year university student, so anyone is free to make any comments and tell me where have I gone wrong.
“Economy is the method by which we prepare today to afford the improvements of tomorrow.” – Calvin Coolidge.
SOURCE: WorldBank.org, ThinkExist.com.
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