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Malaysia and the Perfect Storm

By Thomas B. Pepinsky | July 27, 2012
blogs.cornell.edu/indolaysia

Let’s say that you’re a pessimist about global growth prospects. If so, you’re not alone: Q2 GDP growth in the U.S. is weak, the U.K. is in a double-dip recession, and there’s no end to the Eurozone crisis in sight. Growth in China is softening too, and the rest of the BRICs aren’t registering the growth that we have come to expect over the past five years. If you also think that global financial markets remain fragile, then you’d be right to worry about a perfect storm in the global economy.

This is bad news all around for the big economies. But we should also pay attention to how global economic conditions will affect small open economies. By definition, these are economies that are dependent on trade and investment, and which therefore have harnessed themselves to the global economy as a basic engine for growth and development. This gives them access to markets for their exports and to investment, but by the same token, it makes them vulnerable to whatever ups and downs the global economy experiences.

Malaysia is a classic example of a small open economy. And a new report (unfortunately behind a paywall) from Roubini Global Economics argues that Malaysia is not only the Asian country whose economy is most vulnerable to a perfect storm, but also the country which is perhaps least able to do anything about it. Take note of the following:

  • Malaysia’s bank claims to the U.S. or the Eurozone are almost 30% of GDP (highest in Asia)

  • Malaysia’s exports to China, the Eurozone, and the U.S. are over 20% of GDP (2nd highest in Asia)

  • Malaysia has room for monetary easing, but deficits are already pretty high—and there’s an election coming too, meaning that we can expect that the government is already primed to spend

Take all of this together, and we have cause to worry about Malaysia’s economy over the next year. This may have political consequences too. I have recently argued that in 2008-10, emerging economies like Malaysia were able to escape the worst of the political turmoil that frequently accompanies global economic crises because they were able to explain to their citizens that their own economic troubles were not their own fault. Lula put it best: “this is a crisis that was caused by white people with blue eyes.” I don’t think that this will continue to work, in Malaysia or anywhere else.

14 Replies to “Malaysia and the Perfect Storm”

  3. A Time for Everything

    There is a time for everything,
    a season for every activity under heaven.
    A time to be born and a time to die.
    A time to plant and a time to harvest.
    A time to kill and a time to heal.
    A time to tear down and a time to rebuild.
    A time to cry and a time to laugh.
    A time to grieve and a time to dance.
    A time to scatter stones and a time to gather sones.
    A time to embrace and a time to turn away.
    A time to search and a time to lose.
    A time to keep and a time to throw away.
    A time to tear and a time to mend.
    A time to be quiet and a time to speak up.
    A time to love and a time to hate.
    A time for war and a time for peace.

    :
    :
    A time for you to get rid of Bn

  4. ///Minister: Slashing car prices will cause economic instability
    Bernama | 7:52PM Jul 28, 2012 | 127. This will reduce national revenue by RM7bil which could affect infrastructural development, especially in Sabah and Sarawak.///–Malaysiakini

    Take the 7 billion RM as given. Najib spent 2.2 billion just to make civil servants get one month’s bonus. The 1.4 million civil servants may be laughing to the bank but the rest, 25 millions Malaysians get nothing. Why not allow the 25 millions Malaysians and the 1.4 millions civil servants get their cars at a lower price. The 1.4 million civil servants would be happy to forgo three months’ pay if they can get their cars without the tax meant to protect Proton. The other Malaysians are willing to go along, even though the face value of the cars they won might be reduced.

  6. ///“this is a crisis that was caused by white people with blue eyes.” I don’t think that this will continue to work, in Malaysia or anywhere else.///

    Why not? If no where else has economic crisis except Malaysia then obviously the Government will be blamed for it as the government will be unable to explain to its citizens that their own economic troubles were not their own fault. However if there were a global economic maelstrom affecting everyone due to a “perfect storm” why wouldn’t the govt be unable to blame external factors caused by “white people with blue eyes”???

  7. …..and there’s an election coming too, meaning that we can expect that the government is already primed to spend – End of quote

    The author doesn’t seem to realise that UMNO/BN has been taking or spending the taxpayers’ hard-earned money like it belongs to their grandfathers – robbing us blind for five over decades.
    No reason whatsoever needed!!!
    No wonder the top political families within this party wanted to pass the top jobs down to their future generations.
    Malaysians must make GE12 the last that they will be in power!
    It’s a life or death situation!!!!!!

  10. We don’t need an external perfect storm. We have a bunch of storm brewing all over the country that is enough to blow UMNO/BN out of office.

    Today, in Sabah, the storms just got serious and looks to only gain strength. In Sarawak the storm continue from the last state GE. In Selangor and Penang, PR make their own wind. In Johor, Negeri Sembilan, Perak and Pahang the storms continue gain strength even as Najb & UMNO continue to blow expensive hot air.

    Who needs a perfect storm?

  13. Storm coming. Oh really? I hv no worries. You should hv none too, mate. Listen. Ros ros 1cantik’s diamond ring. Yeah. It will deflect away all of those nasty storms. So keep cool.

    psssst psssst. buzzz buzz…

    huh? wot? she returned the ring? OMG we are phaaarked!!!

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