MARCH 5 - Make no mistake, Malaysia now stands on the brink of recession as falling demand hits exports and manufacturing.

Official data released last week showed Malaysia's economic growth slowed to just 0.1 per cent in the fourth quarter of last year, hit by falling exports and manufacturing as demand continues to evaporate.

In fact, some economists are already looking at a contraction of between 1per cent and 2per cent in 2009.

The pessimistic prediction is based not just on a plunge in manufactured exports but also on the weak outlook for crude oil and crude palm oil prices, the two major contributors to Malaysian economic well-beings.

To be fair, the Malaysian government did not stand idle in this case.  In November last year, Malaysia unveiled a RM7 billion stimulus package to help boost the economy and keep the country out of recession.

Apparently, it has since been overwhelmed by the width, depth and magnitude of the economic crisis. In less than four months, Malaysia's second stimulus plan is due to be unveiled on March, 10 which is expected to be bigger in size and more comprehensive in contents.

No doubt, there will be no short of well-meaning proposals in the deputy prime minister's in-tray.

But one thing for sure, this mini-budget simply cannot run away from addressing these three fundamental objectives, i.e. preserving jobs, stimulating consumer spending and enhancing the nation's competitiveness for long term economic sustainability.

Even though the government so far has not indicated how big the size of the mini-budget, given the severity of the downturn, the market believes that anything below RM15 billion is not going to have the desired impact. Obviously, size does matter here.

However, the government should well bear in mind that the pump-priming effects of the second stimulus package and Bank Negara's aggressive rate cuts in recent months do not always result in increased spending or investing, as the case may be.

Even if with incentives, reduced taxes and money in the pocket, the consumers and the businesses may just decide to save the money, if for whatsoever reasons they are not sure how long the recession will last, especially if they have doubt in the government's capability to lift the nation out of the recession.

Hence, though size does matter in the context of the second stimulus plan, the people's confidence is the key to the success of such stimulus plan. Unfortunately, unlike previously, the people's confidence can no longer be assumed.

Now the people's confidence needs to be earned. And this is the most challenging part of the second stimulus package.

Khaw Veon Szu is a political analyst with SEDAR Institute. Opinions expressed in this article are the personal views of the writer and should not be attributed to any organization he is connected with.

Written by Khaw Veon Szu
Source: http://www.themalaysianinsider.com/index.php/opinion/breaking-views/136-breaking-views/19693-stimulus-plan-works-only-with-peoples-confidence-khaw-veon-szu

---

Share this page