I thought yesterday was scary when Shanghai’s benchmark fell about 9%. Yet, I thought it was a mere blip, some sort of a random walk that usually occurs for no good reason. The Dow Jones followed suit later but I thought it was a reaction to the Chinese performance. As of noon, today, the KL Composite Index has fallen nearly 6%. As a whole, it is not pretty for the region either. This might be the start of a vicious cycle and I am beginning to change my mind about the random walk.

I would like to see data on consumer spending to find out what is really happening though. If we truly are in trouble, consumer spending should start falling. It is only unfortunate that there is a lag in reporting.

Meanwhile, talks of recession are yet again running amok:

Still, traders’ dwindling confidence was knocked down further by data showing that the economy may be decelerating more than anticipated. A Commerce Department report that orders for durable goods in January dropped by the largest amount in three months exacerbated jitters about the direction of the U.S. economy, just a day after former Federal Reserve Chairman Alan Greenspan said the United States may be headed for a recession. [Stocks Have Worst Day Since 9/11 Attacks, AP via Yahoo!, Feb 27 2007]

Alarms have been sounded earlier. That is why I am somewhat skeptical of the feel good atmosphere the Barisan Nasional-led government is trying to paint currently. The economy was relatively good last year — I am willing to accept that much — but between the future and the past, we should concern ourselves with the former, first and foremost.

With a recession expected to hit the US, and — by virtue that the country is Malaysia’s largest trading partner and that Malaysia is hugely dependent on trade — Malaysia, strategically, I feel it is best for the BN-led government to dissolve the Parliament soon. Therefore, I am agreeing with the executive director of MIER, Ariff Abdul Kareem’s opinion.

The later the general election is held, the worse the economy would perform and the worse BN would perform in the election.

Nevertheless, of course, that does not prevent us from savoring the expected Bank Negara’s announcement on last year’s GDP.

13 Responses to “[1115] Of it is best for BN-led government to dissolve the Parliament soon”

  1. on 28 Feb 2007 at 14:41 Mat Merah

    Hmmmm….. I think indicators for the Malaysian economy is more than just the stock market performance. And you are right, the 2006 Q4 GDP would be an indicator of the entire 2006 period.

    So we await that.

    But the Barisan Nasional coalition still has the luxury of time to call for elections. The current meltdown is a day-old and the Malaysian market is just down six percent at noon February 28.

    One swallow does not a summer make.

    The only way Barisan Nasional will lose badly is if their main bedrock of support – the folks in rural areas – are suffering economically.

    That isn’t going to happen just yet with the slew of benefits, subsidies and price of commodities still rising these days.

    And that oft-promised benefits from the 9th Malaysian Plan that will cover the Class F contractors et al.

    Only those of us in the urban areas will complain and withhold our vote but that is given, considering that urbanites consistently give votes to the opposition.

    But that is the same story for elections past. The main problem now for all is separating the economic hype from reality and seeing some benefits trickle down to those in the urban areas.

    The reality is this, those who complain are possibly in industries or jobs that are no longer profitable or pay much and have skillsets unusable in better-paying places.

    The hypermarkets have taken over from the neighbourhood grocer, the restaurant chains and cafe have taken over from the neighbourhood coffee-shop and stalls and so they complain.

    Prices have gone up. Salaries not as much. But not many want to take the risk of quitting and doing something else because they think the economy is going southwards.

    I don’t blame them. And I am not an economist but I see that there are more people – maybe the select few – still out there crowding malls over weekends buying like its going out of fashion.

    I mean, figure this out for me. Bangsar (not exactly an indicator of life in Malaysia) has three MPHs – one each in Bangsar Village I and II and another in Bangsar Baru all within 100 metres of each other.

    And there are three Starbucks too. But no KFC.

    The sector that make up our economy is changing as much as we are changing our livestyles and what we consume.

    Not really a representation of the entire Malaysia but an indicator of where consumption is these days. I outlined as much in Aisehman about Proton and its losses.

    Am already longwinded but just want to say that the market slide this week is not the tipping point for Barisan Nasional as yet to call for elections.

    It will be good for its supporters but they still have time on their side. And lets face, none of the parties are actually prepared for polls despite their bravado about contesting now.

    Except the Siber Party of Malaysia (M) of course.

  2. on 28 Feb 2007 at 14:52 Dek Mat

    i received another report from AP that the US economy is NOT going into recession… so how?

    http://www.forbes.com/feeds/ap/2007/02/27/ap3469086.html

  3. on 28 Feb 2007 at 15:50 Hafiz

    Mat Merah:

    Perhaps recession is too strong a word and slowdown is preferred?

    Regardless, my skepticism is not based on the fall on stock market per se. It is true that it is too premature to predict a recession or slowdown based on day trading o even the stock market. Far from that, I based my skepticism on the expected slowdown in demand in the US, which would affect Malaysian export. Further, the slightly inverted yield curve in the US still scares me.

    These two concerns have been expressed months now. The fall in the stock market is just a sideshow.

    But you are right though about people spending money. That is why I said I would love to see data on consumer spending. That data would tell us exactly what is going on and cut discussion short.

    But given the concerns on demand and yield curve, I am convinced that the probability of a slowdown increases as time goes by and hence, the opinion that it is better for BN to dissolve the Parliament sooner rather than later.

    I think I need to stress this: the probability of a slowdown increases as time goes by. We are having it good but it will not last forever. If people are spending money today as if money grew on tree, that does not mean they would do the same six month from now.

    Dek Mat:

    In economics, there is a joke. It is said that it is only in economics could two persons saying the exactly the opposite thing win the Nobel Prize. Hayek and Myrdal shared one in 1974.

    So, pardon me for having diverging opinion.

    You may read my post at http://maddruid.com/?p=981 to see the basis of my opinion on economic slowdown.

    Also, an article which reinforces the point on falling demand in the US: http://nytimes.com/2007/02/28/business/28leonhardt.html?ref=business

  4. on 28 Feb 2007 at 16:57 Mat Merah

    Hafiz, Thanks. I know what you mean. The US slowdown will definitely affect us as much as it will affect other nations.

    Even Singapore is feeling the heat with exports of electronics and pharmaceuticals down early 2007.

    I take what you say about the probability of a slowdown increasing as time goes by if one is to depend on the US markets alone especially manufacturing ie. electronics.

    But the economy is diversifying and both fossil fuels and palm oil can contribute as well as tourism as its VMY2007. Services however will be dodgy!

    However, I can only presume that Abdullah Ahmad Badawi, will or already has taken a leaf out of Dr Mahathir Mohamad’s book and will pump-prime the economy with various infrastructure projects to mitigate any shortfalls in exports.

    That will take some time to bite but will tide over the core supporters and keep growth at current pace.

    What the heck, maybe BN should dissolve Parliament and call for elections soon if the slowdown happens sooner than later but I doubt it at this point.

    Will keep your thoughts in mind. Peace!

  5. on 28 Feb 2007 at 17:16 Dek Mat

    dude its great to have diverging opinions, in fact i encourage it!

    but coming back to your post, you say that that the govt shud call for elections now because you assume that the economy will worsen in the near future…

    all we’re saying is that it’s a little premature to say that economy will worsen and hence why we believe that the govt will not call for elections today.

  6. on 28 Feb 2007 at 18:55 Mat Merah

    Damn. My mistake. Tourism is part of services. Sorry!

    Anyway the 2006 Q4 figures are out with growth at 5.7 percent, bringing 2006 growth to 5.9 percent overall. Looks like you are right with warnings about slowdown hitting Malaysia’s 2007 growth.

    We’ll have to see whether the trade promotion trips to the Middle East, Far East and other parts of the world pan out for the economy.

    I expect commodities to prop up any shortfall in our export-drive economy, taking up the slack from manufactued goods.

    Consumption will be a problem if salaries remain as they are and disposable income shrinks due to basic living costs trending higher ie. CPI!

    It all depends on the ringgit too but Bank Negara is a prudent and conservative auntie when it comes to forex trading on the RM.

    As for snap polls, anytime now without benefits from the slew of projects would backfire on BN. Anytime later, they run the risks you have outlined.

    Anytime however, Siber Party of Malaysia (M) is ready!

  7. on 28 Feb 2007 at 22:31 Hafiz

    dek met: then let’s us until 2007 ends and then see whether its premature or not.

    mat merah: I am unsure how commodities could cover for any loss in the manufacturing sector. The size of manufacturing is quite substantial compared to extraction.

  8. on 28 Feb 2007 at 22:41 Dek Mat

    hafiz: you’re on! hehee so how do we wanna do this? coffee? dinner? whiski? oklah i’ll be happy with just a special post ;) deal?

  9. on 01 Mar 2007 at 12:35 Mat Merah

    Indeed manufacturing is humongous in Malaysia. I don’t expect that great a shortfall, that’s all.

    I think manufacturing exports will pick up in second half 2007 while commodities will expand further with oil and palm oil prices nudging higher.

    I could be so wrong on this! What actually matters to most is if there is more change in their pockets.

    That depends on their paypacket or revenue streams. The enterprising person gets the dosh!

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