Recovery unlikely to be anytime soon!!!

Recovery unlikely to be anytime soon, says Lin

KUALA LUMPUR: While supportive of the increased spending via the stimulus measures, Malaysia’s economy is not expected to recover as long as the global economy is not showing any tangible sign of a turnaround, said Tan Sri Dr Lin See Yan.

The former deputy governor of Bank Negara Malaysia (BNM) and a member of the Prime Minister’s Economic Council and Innovation Council is doubtful that the economy will recover by the second half of this year, as envisaged by some.

“I think that in times like these, it is better to err on the side of aggressive stimulus spending. However, while some of the recent data might show that the worst is over, less worse does not necessarily mean recovery.

“While I do not want to be a pessimist, I just cannot see how the global economy can recover when the United States and Europe, which together account for around US$15 trillion (RM53.25 trillion) to US$16 trillion in consumption, continue to be mired in recession,” Lin said in an interview with The Edge Financial Daily last Friday.

Lin said while China appeared to be doing well domestically, it was not in a position to act as the engine of growth for the global economy. “China’s total economic consumption of over US$1 trillion is just a fraction of those of the US and Europe,” said Lin. (well said!!)

Bloomberg recently reported that the US recorded a rise in the number of people collecting unemployment insurance, which surged in the prior week to 6.56 million, setting a record for the 15th straight week, and a clear indication that companies were still not hiring.

Commenting on BNM’s statement that the current overnight policy rate of 2% was accommodative enough to support growth, Lin concurred, saying that however, the main issue here was access to capital for businesses.

“There is no point in continuing to cut the interest rate level if it does not lead to an increase in access to funds, or when only a fraction of the cut is passed on to consumers,” Lin said.

He commended the move by the government to guarantee credit for small and medium-sized enterprises (SMEs), saying that right actions were being taken to tackle the crux of the problems faced by businesses.

“If the situation is not rectified, there is a danger of us falling into a liquidity trap, a situation where the lower cost of borrowings is not leading to an increase in access to capital,” he said.

The authorities have taken a slew of measures to ensure access to capital by businesses, such as Credit Guarantee Corp (M) Bhd’s partnership with financial institutions to guarantee loans to SMEs and the setting up of the BNM-backed SME Assistance Guarantee Scheme (SAGS). In addition, Danajamin Nasional Bhd, armed with an initial capital of RM1 billion, became operational last Friday, tasked with insuring up to RM15 billion in private debt and Islamic securities.

On the recent recovery in the equity markets, which saw the KLCI surging over 20% to breach the 1,000-mark, Lin said this could most likely be due to “pessimism fatigue” among investors. He noted that corporate earnings were still weak, and it was important for the stimulus packages to have the right combination of programmes to help businesses scale upwards.

Lin said Prime Minister Datuk Seri Najib Razak’s administration had the opportunity to bring the economy to the next level, but there was still a lot more to be done. “The main challenge now has shifted to that of managing expectations, where the government has to be on top of the situation and bring optimism back to consumers. A real recovery is only possible when there is a real demand for goods and services,” added Lin.

http://www.theedgemalaysia.com/business-news/14311-recovery-real-or-wishful-thinking.html