Saturday, October 18, 2008

Is Malaysia heading towards a recession?

The global financial meltdown and uncertainties dampen the growth of Malaysia's export sector and affected the economy.

Traditionally Malaysia's growth has been export dependent but increasingly over the years, domestic demand has been a pillar of growth.

Undeniably, when the world's biggest consumer tightens the belt, everyone feels the pressure and the economy is heading towards recession. The degree of recession is yet to be known.

Interestingly, what are recession, depression and economic collapse?

A recession is a decline in a country’s Gross Domestic Product or a negative real economic growth for two or more successive quarters in a year.


A depression is a severe or long recession and economic collapse is a devastating breakdown of an economy, essentially, a severe depression, or a hyperinflation, depending on the circumstances.

Economic Collapse

Recessions are caused by increase in interest rates, decline in consumer confidence; firms reduce output and lay-off workers, which further decreases demand, and deepening economic slowdown that have an economy-wide impact.

During a recession, there is a greatly reduced job opportunities. While there would be more people in the market looking for employment, the demand for recruiting people is far lesser.

The general trend of rising unemployment rates can cause decreasing overall output and income growth would be stalled. When incomes are reduced, purchasing and spending power decreases proportionately.

Businesses are limited in their ability to pass along any increases in expenses in the form of higher prices. In order to move goods off the shelves, businesses are more likely to reduce prices. This eventually causes deflation.

With prices drifting downward and commodities becoming more affordable, consumer spending will once again increase. The increase in consumer spending leads to an increase in production. This in turn improves corporate profits leading to increased employment and improved earnings. This is the economic cycle.

During a recession, people turn to fiscal conservatism. When the levels of unemployment increase during a recession, it causes affected homeowners to sell their home to accommodate changing job demands. As higher supply of houses on sale as compared to the low demand, an economic recession will forcefully reduce the selling prices of homes.


Anonymous said...

We should diversify our economy in helping to offset the dependency on export electronics devices to US. The agricultural policy should be stressing and implementing soonest possible.

Anonymous said...

the fundamental economy of Malaysia is very strong. The price of oil is excellent and contribute to GDP. If the number of government servant is greatly reducing but the quality of service is improving, the impact of recession will be reduced.

Anonymous said...

Foreign workers should be reduced.
It should recruit from local.