THE signs are auspicious as the sprouting green shoots that herald spring after a gloomy winter. After years of lacklustre growth in the aftermath of the 2008 global financial crisis, the world economy appears to be coming out of the woods.
Despite the world being awash with uncertainties, including United States President Donald Trump’s protectionist bent, the International Monetary Fund forecasts the world to grow at a commendable clip of 3.4 per cent this year. Albeit, a tinge lower than the average over the last 15 years, this year’s world growth will be the fastest since 2011.
Many factors contribute to this optimism of world recovery. Global trade has been on the ascent since 2015. Trump’s economic agenda of income tax reform and infrastructure spending should turbocharge a fledgling US economy, which has put the US Federal Reserve on alert to a heating economy. Accordingly, it has put out notice that there will be at least two further rises in the benchmark interest rate to moderate the accelerating growth.
The ongoing restructuring of China’s economy, the second biggest in the world, from an investment-led growth to one fuelled by consumption, holds promise of a rebound in its economy this year. Indeed, it has posted a 10 per cent growth rate in the first-quarter of this year after a three-year hiatus. China’s espousal of global-trade deregulation is a welcome counterbalance to the US anti-trade sentiment.
The Japanese economy has been comatose for the last 20 years. It is now coming out of its stupor, thanks to the effects of the recent large-scale stimulus packages to boost consumption, ultra-loose monetary policy and a weaker yen.
The US, China and Japan are among our top export destinations. Together, they buy close to 40 per cent of our exports. Their sustained recovery augurs well for our economic health, too.
On the domestic front, we are not doing too bad. Our economy is expected to grow further on the back of a resilient export sector. Malaysia’s total trade has bounced 20 per cent during the first two months of the year and its current account surplus had doubled in the fourth quarter of 2016. These jumps indicate investor confidence and strength in our economic fundamentals. Also, revenues from exports of commodities should afford the government some slack to intensify its infrastructure spending while boosting household spending through Bantuan Rakyat 1Malaysia, or BR1M.
Private investment growth is expected to perk up to 4.5 per cent this year while consumption, the key driver of growth, will remain stable as household debt growth slows down. There has been a greater liberalisation of the foreign exchange and bond markets. This should widen opportunities for hedging against interest rate and international trade exposure, auguring well for trade. The biggest positive yet is the uptick in business and consumer confidence.
What should the government and businesses do in their search for levers of growth to rev up a slow growing economy?
FIRST, businesses should wean themselves off foreign labour. The myriad incentives to promote automation and innovation offers a better option to businesses to improve their productivity and competitiveness.
SECOND, the services sector contributes roughly 60 per cent of the gross domestic product. The government should liberalise this sector to extend the virtues of competition. Greater liberation will boost economic growth through the attraction of more foreign investments, professionals and technology.
THIRD, contributing to one-third of the national output, manufacturing has remained a mainstay of the economy. Greater diversification into high-end manufacturing and into those that build a technological and skills base to grow other manufacturing industries can give a fillip to economic growth.
FOURTH, contributing 36 per cent of GDP and two-thirds of total employment, the small and medium enterprises are the backbone of our economy. They should remain our bulwark against external headwinds and a buffer to the economy as our exports find a grip in a recovering global economy.
The writer, Datuk Dr John Antony Xavier is head of the Strategic Centre for Public Policy at the Graduate School of Business, Universiti Kebangsaan Malaysia. He can be reached via email@example.com