Category: Economics

If you think 2006 is bad because of higher energy prices, you probably haven’t heard about what’s in store for you in 2007. Consumption in the US is slowing down and there’s an expectation that the slowdown will affect world economy:

KUALA LUMPUR, Nov 13 (Bernama) — The slowdown of consumer spending in the United States is expected to dampen overall global economic growth in 2008, says UBS Investment Bank’s deputy global economic head Paul Donovan.

“We are looking at a slower growth of the global economy, led by a slowdown in US consumer consumption,” he told reporters here Monday.

Donovan said the overall global economy is expected to be at 3.7 percent in 2008 compared with 4.5 percent last year.

The yesterday edition of The Edge has a few interesting articles in it. One of its reports highlights the slowdown of demand for electronics in the US. I’m unable to find the same article online but it’s titled “Who’s afraid of an electronics slowdown?” if you’re interested in searching for the article.

Worry not though because The Star has a report on similar issue:

KUALA LUMPUR: Anecdotally, equity analysts are seeing corporate book-to-build rates falling for electronic firms in the US, according to UBS Investment Bank managing director, deputy head of global economics Paul Donovan.

“Economies such as Taiwan, Thailand, Singapore and Malaysia, with substantial semiconductor sectors, can expect a slowdown in demand,” he told a press briefing yesterday.

You might notice that both Bernama and The Star reports quoted the same person from UBS. The Edge report however does not do the same. The Edge report was written by individuals from DBS. So, it’s not really an one-man opinion.

According to a graph attached to The Edge article, electronics makes up about 40% of Malaysian total export. Needless to say, the slowdown in demand will affect Malaysia.

Already, people are talking about a bearish 2007. Just check out this Mongan Stanley article:

Surely, there must be more to a US$46 trillion global economy than the American consumer and the Chinese producer. Not only is that the current verdict of financial markets, but it is also consistent with the sentiment I have been picking up from a broad cross-section of our clients — business executives, investors and senior government officials — as I travel the world this fall. While they concede the possibility that these two engines of global growth may, indeed, slow in 2007, there is a general belief that other economies are now perfectly capable of filling the void. Hope springs eternal that such a global decoupling would allow an increasingly vibrant global economy to keep growing while barely skipping a beat. My advice: Don’t count on it.

So, before 2007 comes, let’s live 2006 to its fullest – spend till you drop! If you haven’t dropped already, that is. LOL!

(It’s better start saving now though. But like all good things in economics, it depends on your personal preference — in this case, inter-temporal preference; i.e. interest rate — which is really hard to measure in spite of progress made in economics.)

p/s – I admit. The talk of a recession started way early in the year back in January when an inverted yield curve made an appearance.

You guys have probably about the re-initiation of talk between Proton and Volkswagen:

KUALA LUMPUR (XFN-ASIA) – The government may approve a proposal to sell a 51 pct stake in the manufacturing operations of Proton Holdings Bhd to a foreign strategic partner, the Edge Daily reported.

Mind you, I haven’t had the chance to read the local paper lately. But I scourged around the internet and found this too:

Malaysian auto company Mofaz Group hopes to acquire part of the 38 per cent stake owned by state-controlled Khazanah Nasional Bhd in Proton and take control of the ailing national car maker, a report said yesterday.

Anyway, from The Star:

See that two earlier cascades early in the year?

That was when the first talk between the two parties collapsed in January 2006.

Regardless, the meeting between the two car makers means more resources for governance, less for bail outs. All else being equal of course.

I’m happy that the Democrats have taken over the House. They’re likely to take over the Senate too. Despite that, I don’t share with many economic policies espoused by the Democrats. While I’m unsure where do they stand on the ongoing Malaysia-US FTA negotiation, it’s probably fair to say that the Democrats would take on a protectionist stance. If that’s the case, then the US negotiation team would’ve weaker influence to wield against the Malaysian negotiation team.

On top of that, the US team’s authority is fast expiring, making the scenario for the US team more depressing; the trade promotion authority will expire in July 2007. With a Democrats-dominated Congress, it’s possible that the Congress won’t renew the power the US trade authority currently enjoys. Earlier, I’ve suggested that time is on the Malaysian side. With the current development, that suggestion has become more compelling than before.

Talking about free trade, another FTA is on the horizon. It’s with Pakistan:

KUALA LUMPUR, Malaysia (AP) – Malaysia wants Pakistan to cut import duties on motor vehicles and palm oil under a proposed free trade agreement that both sides hope to conclude by the year-end and implement from January, a report said Tuesday.

We know what we want. But what does Malaysia offer to Pakistan? According to the Daily Express:

Malaysia’s offer to Pakistan covers 114 tariff lines which include yarn, textiles and clothing while Pakistan offers 125 products such as electrical appliances, machinery, plastic products, chemical, rubber and timber products.

On the Malaysia-Pakistan FTA negotiations, Rafidah said Malaysia has requested reduction in import duties on motor vehicles.

“We have identified products of interest to us and so are they. We are now finalising whether we can offer what they requested and whether they can accept our requests. Hopefully, there will be some movements,” she said.

On services, Rafidah said, Malaysia has made the same offer to Pakistan in the Doha Round.

They are accountancy, engineering, architecture, construction, higher education, distributive trade, franchising, health, oil and energy.

Cool, but does Pakistan really want in return? The article doesn’t say. I wish the information was more readily available to the public. Alas, transparency isn’t the Malaysian government’s forte.

Regardless, in all likelihoods, Malaysia should come out on top in this FTA. Why? Well:

“For the January-August 2006 period, Malaysia has exported RM24.3 million worth of products to Pakistan, mainly petrochemical products, oleic acid and rubber.

“Unfortunately, there were no exports from Pakistan and this showed that Pakistani businessmen are not taking advantage of the EHP which took effect from January 1 this year,” she said.

Hey, we could use some of your nuclear stuff. Export us some, will ya?

According to Slate (thanks John for the lead):

As a result of this year’s election, it now seems unlikely that the new Congress will extend George W. Bush’s ”fast-track” trade-negotiating authority, which expires this summer. The results are further bad news for the Doha round and bilateral trade agreements with South Korea and other countries. It is possible that congressional Democrats will revive efforts to saddle China with punitive tariffs as punishment for ”currency manipulation.” It would be going too far to say that the 2006 election ushers in a new protectionist consensus. But free trade has definitely left the building.

Needless to say, I agree.