Tag: business cycle

Categories
Economics

[1380] Of targeting for an unchanged Malaysian rate

Do we need a rate cut following the September 18 footstep of the Federal Reserve to properly manage the Malaysian economy from the monetary side of the equation?

The answer is possibly no. While the US is the largest trading partner for Malaysia, the state of the US economy is not the only factors that need to be considered in managing the local economy.

The slowdown of the US economy, partly signaled by the slowdown in demand for electronics as well as the subprime mortgage crisis affect trade between Malaysia and the US adversely. The effect however is being mitigated by large government spending and as mentioned earlier by Bank Negara, robust domestic consumption and investment. While I personally expect a slowdown in the Malaysian economy, I have a feeling that the state of our economy is healthier than the one suggested by those in the broking business. For those following the security industry, suddenly, they have become more pessimistic than me!

Anyway, with a respectable performance so far, there is limited need to cut rate in order to boost the economy. We need not appeal to the short time horizon that any financial indicator proffers.

At the same time, with the rate cut by the Federal Reserve, it might actually spur growth for the Malaysian economy. First of all, it might improve the US economy which in turn encourages trade between the two countries though Malaysian export will be more expensive compared to US goods; US export will be cheaper compared to Malaysian goods. Secondly, with the reduced interest rate differential between that in the US and Malaysia, more funds could actually flow into Malaysia. Both, sooner or later would strengthen the Malaysian ringgit against the US dollar as capital flows into Malaysia from the US.

So, against, less reason to cut the Malaysian rate the next time the Bank Negara Monetary Policy Committee sits in October next month.

On the other side, inflation seems to be well contained. Hovering around 2%, it might give a rate cut a chance but with the upcoming festive season as well as increasing crude oil price, it is not wise to bet for a rate cut.

If I were a voting member within the MPC and the environment stays practically the same, I would vote like how the MPC had voted earlier; do nothing to let the rate stays at 3.50%.

Categories
Economics

[1362] Of another bad news for Malaysian export-driven economy

As Malaysian electrical and electronics export takes a hit from slower US demand, news from the third largest market for Malaysian export might not be welcomed:

TOKYO – Japan’s economy contracted in the April-June quarter, the government said Monday in a revision of its preliminary estimate that it had expended.

The latest data suggest that the world’s second largest economy – which has been recovering in recent years – may be suffering a slowdown in its pace of growth, making it harder for the Bank of Japan to raise interest rates anytime soon. [Japan Says Economy Contracted in 2Q. Associated Press via Forbes. September 10 2007]

Categories
Economics

[1358] Mengenai Bajet 2008

Saya amat membenci perkataan bajet dan lebih mengemari akan perkataan belanjawan. Itu bagaimanapun adalah satu perkara yang remeh dan mungkin hanya mengambarkan keadaan terkini dunia bahasa Melayu. Tiada apa yang perlu digusarkan.

Bacaan pertama belanjawan negara untuk tahun 2008 akan dibentangkan di Dewan Rakyat Jumaat ini. Saya ingin bertanya, apa pendapat anda akan belanjawan kali ini?

Saya pasti ia akan berputar kepada satu paksi: pilihanraya. Oleh itu, investment horizon kerajaan pimpinan Abdullah Ahmad Badawi berkemungkinan akan berjangka pendek bertujuan untuk mempergunakan satu kelemahan kebanyakan manusia: tidak ramai mempunyai kebolehan untuk melihat disebalik bukit, walau serendah mana bukit itu.

Defisit perbelanjaan mungkin akan bertambah melalui perbelanjaan kerajaan dalam usaha untuk mengatasi kelemahan komponen eksport bersih yang disebabkan oleh tahap kecerdasan ekonomi Amerika Syarikat yang menurun serta penambahan nilai ringgit Malaysia berbanding dolar Amerika. Cukai pula mungkin akan dipotong, sekaligus memperkuatkan lagi kemungkinan pertambahan defisit perbelanjaan. Saya rasa, Keynes akan tersenyum seketika, jika ini benar.

Tetapi, kebolehan mendengar mungkin satu kebolehan yang semua individu yang rasional perlu ada. Mari kita berlaku adil dan dengar apa yang Perdana Menteri mahu dilakukan untuk tahun 2008.

Categories
Economics Society

[1335] Of now, moving on to something more important than Negarakuku…

I find it amazing how too many people are preoccupied with Namewee’s Negarakuku, especially but those that want punishment to be brought upon him for whatever he did. The thing is, he did nothing but criticized the state of our society. His action affects nothing but a lot of people’s ego, being too sensitive to criticism. It’s okay to disagree with any criticism but demanding a person to be silence by force because we disagree with him?

So much for a matured society.

Islamists and nationalists, the Cabinet even, are harping on the issue so hard as if there is nothing else that is important, more deserving of their attention. To me, the issue surrounding fiasco surrounding the Port Klang Free Zone, is much more crucial to our society.

And here is something that affects a lot of people but receives too little attention as well. According to last week edition of HSBC Research, quoted by The Edge, total trade for June 2007 is 0.9% lower than a year ago. It is pretty much attributed to a 22% drop in export to the US.

From the Malaysian Department of Statistics:

In June 2007, external trade data posted a surplus of RM8.7 billion as compared with RM8.2 billion in the same month of 2006. A growth of 5.6% or RM458.1 million in the trade surplus was due to a lower decline in exports of 0.4% or RM186.8 million vis-a-vis a higher decline in imports of 1.6% or RM645.0 million. Total imports and exports for the month were valued at RM40.3 billion and RM49.0 billion respectively as against RM41.0 billion (imports) and RM49.2 billion (exports) a year ago. [Malaysian external trade statistics, June 2007. Malaysian Department of Statistics. August 9 2007]

On the surface, several factors could be attributed to the fall in export. One is the fall in demand for electronics in the US, which itself could be attributed to the current slowdown in the US economy. Second is the appreciating MYR against the USD.

I however unable to find a reason for a fall in import. It might be due to slowdown in consumption component of the GDP which could signal an economic slowdown. I have yet to see a data on consumption to strengthen the base of my suspicion.

Regardless, issue of subprime mortgage in the US brought the Fed to do a helicopter drop. Several others central banks went to do the same thing in hope to increase market liquidity. In fact, increasing number of people now believe a rate cut is coming.

A rate cut would signal this: a transfer of focus from inflation to economic slowdown; there are few that prefer to use the word recession instead. The FOMC convened earlier this month and decided to keep the federal fund rate untouched, apparently confused whether the economy was growing or shrinking.

Given how important the US economy is to the Malaysian economy, I expect a dent though government spending via the Ninth Malaysia Plan might take up the slack. Keynesians would love that possibility.

As for the election, well, suffice to say, I think the government of the day has missed the chance to dissolve the Parliament during a time of exuberance. From now onwards, only uncertainty remains.

Categories
Economics

[1319] Of has the time for a downturn come?

In the US, the warning finally meant something:

The Standard & Poor’s 500-stock index fell 2.7 percent yesterday, with much of the decline coming after Bear’s conference call started around 2 p.m. The Dow Jones industrial average lost 281.42 points, or 2.1 percent. And the dollar fell noticeably against the euro and the British pound.

While consumers continue to express confidence in the outlook for the economy, the government’s monthly employment report, released yesterday morning, added to worries about the spreading impact of the housing slump. The economy added only 92,000 jobs last month, down from 126,000 in June and the unemployment rate ticked up to 4.6 percent.

[…]

“I have never seen it happen so quickly,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Banks always do these little cutbacks here and there. What they are doing now is a liquidity crunch. It’s a credit freeze.”

[…]

Despite all the worries about credit markets, however, the economy continues to plow ahead and even yesterday’s jobs report was not weak enough to suggest that the Federal Reserve would cut its benchmark short-term interest rate when it meets next week.

But the risks to the economy do seem serious enough that investors now expect the Fed to cut its rate to 5 percent, from 5.25 percent by November, based on the price of a trading instrument that is tied to Fed policy. And the yield on the 10-year Treasury note fell to 4.68 percent from 4.77 percent Thursday evening.

[…]

Wall Street analysts say they are increasingly concerned that consumer spending will weaken as more people in housing and related sectors lose their jobs. They also worry that many homeowners will cut back as they find it harder to refinance or borrow against the value of their homes. [Markets Fall as Lender Woes Keep Mounting. NYT. August 4 2007]

Please do not look at the S&P 500. Instead, look at the issue in the housing sector.

That cold might spread to Malaysia. That huge government spending under the Ninth Malaysia Plan however could mitigate the effect of a slowing US economy, at a price of course.

Anyway, I am still holding on to that bet.