Nurturing green shoots of economic recoveryBy Rupa Damodaran
Action is key as in the wake of too many such ETP blueprints, there is the risk of market weariness and numb reaction to Malaysia's continuous flow of good news.
JUST as the gardener watches anxiously for the first signs of his spring flowers, 2010 started with trepidation as everyone trained their eyes for the green shoots of economic recovery.
But instead of the yellow crocus or daffodil peeking out of the mud, marking the first signs of spring after a frigid winter in Europe, shoots - sought after the world over - sprang up in the warmer Asian economies, fighting shy of the most advanced economies.
Such has been the contrast in the recovery pace between emerging Asian economies and the BRICs versus the G3 economies, sustained by strong domestic consumption as well as external demand.
Malaysia stood in the proud pack of above trend growth in the Asian regional economies led by China and India.
Everyone leapt with joy when the Prime Minister said the economy had turned around in the first quarter (from the 2008/2009 crisis) by nothing less than an impressive double-digit growth of 10.1 per cent.
The stellar growth number was necessary for the treasury and monetary as well as the economic planning authorities in Malaysia who already had their work carved out for the new decade. Until the winds of global uncertainty threatened to cause havoc.
Clearly, the Malaysian economy was firing on almost all cylinders except for the mining sector.
Three months later, Malaysia's growth pace slipped but still at a sparkling high digit of 8.9 per cent, which meant the strong growth momentum has succeeded in steering the economy to recovery. Domestic demand played a major role.
For the trade-dependent economy, which is the third largest in Southeast Asia, the first half's performance showed that although there was demand weakness from Europe, including when Iceland's volcanic ash disrupted trade, Asian markets mattered.
There was a jump in exports to China, the world's second largest economy, leading it to have a larger share of electrical and electronic (E&E) products than the US.
Was this a new global economic paradigm shift?
Only many quarters of orders can confirm this.
Comments seem to indicate a shift, but the third quarter performance which was hit to 5.3 per cent, pointed to a weaker external environment. Our export contribution fell as the year drew on.
The US, which used to lead the global economy until recently when it became the epicentre of one of the worst crisis, and a major importer of E&E products, was not consuming like it used to.
But the dip in orders could also be due to higher expectations of a rebound in the G3 economies which have probably led to a faster pace in inventory rebuilding compared to the actual recovery.
Although Europe's debt crisis woes are confined to the peripheral countries and not the major economies, Malaysia is watchful if there is any risk of a double-dip recession which would have knock-on effects on our products.
The third quarter performance was also significant in that it was probably the period when most governments started to roll back their stimulus measures so as to reduce public debts.
Malaysian government spending fell by a massive 10.2 per cent while in the Philippines it fell 6.1 per cent.
The fourth quarter will show whether our external and domestic demand has held up without stimulus measures in place and the need to resort to further fiscal or monetary policies to rein in sustained growth in 2011.
Inflation was tamed during the year but with commodity prices going up and the government's determined path of subsidy rationalisation, the Consumer Price Index is headed towards several notches north.
Just as the gardener sows his seeds, Malaysia has a lot to look forward to in the next few quarters while the global economy slowly gets back on its feet.
The economic reform agenda to remodel the economy through the Economic Transformation Programme will push for high impact projects.
Action is key as in the wake of too many such blueprints, there is the risk of market weariness and numb reaction to Malaysia's continuous flow of good news.
The delay in releasing the final structure of the GST or goods and services tax, is a case in point.
Going forward, areas of concern still remain and our obsession with rankings, be it for competitiveness or capital flow, will continue to nag.
In the meantime, let's wait for spring and see where the green shoots will emerge faster.