GREEK philosopher, Socrates, once said: “An unexamined life is not worth living.”
And as the new year dawns, many will reflect on what is in store for them individually and collectively as a nation. Foreseeing the future is akin to looking for a black cat in a dark room, which may not even be there.
Hence, the aphorism of Michael Farage, a British politician, that “prediction is a mug’s game”. But predict we should, lest we fail to guard ourselves against any ill that might afflict us and our economy. Renowned historian Arnold Toynbee contends that the past is the key to understanding the present and foreseeing the future.
It is imperative to analyse the economic performance in the past to see what 2019 holds.
Although slower than 2017, the country’s economic growth rate should post five per cent in 2018. Recent growth rates have stalled partly due to the relentless cuts to capital expenditure since 2010.
Malaysia’s development expenditure as a percentage of total expenditure has more than halved from 40 per cent in 2000 to 18 per cent in 2019.
Such a plunge is emblematic of the tendency of any government to cut capital expenditure first in its quest for fiscal balance. Given the relative stagnation of development expenditure and lower private investment, domestic consumption powered much of last year’s growth, fuelled largely by the elimination of the Goods and Services Tax (GST) and the country-wide harmonisation of the minimum wage.
While household debt, at two-thirds of household income, can be constraining, the lower cost of living from lower fuel prices and price controls, such as a freeze on toll fares, should still favour a consumption-led growth.
With exports constituting some 70 per cent of the nation’s Growth Domestic Product (GDP), our fortunes are closely tied to global developments.
While the global economy was less buoyant, it is still expected to post roughly a four per cent growth.
The escalation of the trade war between the United States and China, and possibly the onset of a Cold War, enveloping issues such as intellectual property, cybersecurity, investments, human rights and posturing in the South-China, will continue to impact negatively on global growth.
More so, as the US tariffs start to bite in 2019 and if the US lifts its moratorium on tariffs on an additional US$50 billion of Chinese imports and China reciprocates in equal measure. As China and the US are our second-largest and third-largest export markets, and as both economies slow down on account of their tit-for-tat tariffs, we are going to feel the afterburn by as much as 20 per cent loss in external trade in the new year.
Additionally, the British economy is expected to stagnate after Brexit in March. Fiscal troubles in Italy may spook growth in the Eurozone.
However, rosier growth in India, Japan, US and China should compensate for the slowdown in Europe and elsewhere.
Although global growth will not be stellar in 2019, it should at least stave off any recession for yet another year.
The continued decline in oil prices is a double-edged sword. While it has a salubrious effect on the cost of living, it will shrink government revenues.
With stockpiles depleting and Organisation of the Petroleum Exporting Countries (OPEC) agreement to curtail output — while demand continues to fall — we can expect oil prices to hover around US$50 a barrel in the coming year.
At this level, the government stands to lose RM8 billion in revenue. That will widen the budget deficit to 3.9 per cent, thereby, inviting unwelcome downgrades of our credit rating with deleterious consequences on borrowing rates.
Borrowing costs will spike even further by a stronger dollar with every round of benchmark interest-rate rises by the US Federal Reserve in 2019, making it harder for us to service our dollar-denominated loans.
A strengthening dollar will continue to drain capital from the country and pile pressure for an upward revision of our benchmark interest rate. Any such revision will affect negatively on investments and growth.
Hopefully, our large trade surplus of more than RM16 billion should cushion the impact of the cash outflows.
Additionally, the RM9 billion jump in the 2019 development allocation to RM57 billion — the highest allocation since independence—should help us mitigate any sluggishness caused by a stagnant global economy.
On the social front, public anger over corruption saw a new government installed.
We can expect the acrimonious political and racial rhetoric following its installation to die down as the government settles down to the business of governing and fortifying racial integration.
Our diversity has served us well. In keeping with the aspirations of Vision 2020, we need to weave the threads of diversity ever so tightly into the tapestry of social cohesion.
All in all, we can expect the economy in 2019 to be on an even keel. However, it is not predictions that determine the future. Rather, it is government plans that respond expeditiously to economic and social challenges that matter.
With the impending widening of the budget deficit on account of the oil-price fall, the government must ensure strong fiscal discipline without compromising the well-being of the citizenry.
With a trillion-ringgit debt overhang, the economy will remain the government’s pre-eminent focus.
As the nation struggles to find its soul, it is imperative that the government also gives equal attention to national unity.
Datuk Dr John Antony Xavier is distinguished fellow at the Graduate School of Business, Universiti Kebangsaan Malaysia