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The government must set a clear vision and economic plan. FILE PIC

THE year 2019 appears to be less promising than previous years, with the International Monetary Fund revising downward its global economic and trade growth forecasts for the year. No region can be deemed as “safe”.

One important indicator for the United States economy is that famous yield curve, which is becoming inverted.

In other words, the yield curve has become negative. This inverted yield curve is regarded by economists and analysts as one of the most reliable recession indicators in the US.

After all, every recession in the US since World War 2 had been preceded by an inverted yield curve.

This is the main argument used by pundits warning of a US recession, the earliest of which is expected by 2020.

But the underlying factor that will shape the direction of the US economy next year, and by extension the global economy, is the trade war with China.

The 90-day trade truce, though commendable, is not enough.

Both parties should have at least agreed on a fundamental framework on how to move forward and address key points of contention, such as China’s Made-in-China policy, an attempt by the Chinese leadership to break away from the middle-income trap and to become a high-income nation.

But more importantly, sincerity on both sides is needed. US President Donald Trump’s declaration in his tweet that he is “a Tariff Man” sends the wrong signal to the peaceful resolution of the trade war.

Then, there is Brexit. The difference this time around is that there is a deadline.

The United Kingdom has to exit the European Union at the end of the first quarter of 2019, with or without a deal.

Clearly, the pressure is mounting on Prime Minister Theresa May.

The Bank of England had rung the alarm bells that a recession seems plausible for the UK economy next year if the country leaves the EU without any deal.

A UK recession will have an impact on the world economy, especially emerging Asian economies.

As a small open economy, Malaysia is not spared from this grim outlook.

It must be prepared to minimise its impact so that the nation does not face a full-blown recession, an exodus of capital and a depreciation of the ringgit.

This will translate into slower business growth, stagnant wage growth and a spike in unemployment rates, especially among youth.

Malaysia’s third-quarter economic and financial data is on a downward trajectory.

The gross domestic product growth for the three months to September this year was recorded at 4.4 per cent, down from the preceding quarter of 4.5 per cent.

As Malaysia’s aggregate demand decelerates, it caused a slowdown in corporate earnings, weakened liquidity in the market, reduced net interest margin and a drop in the government’s revenue collection.

At the time of writing, Brent crude oil prices had dipped to below US$60 per barrel, the first time since October last year.

As Malaysia’s economic performance has always been tied to the price of oil, the government must be cautious so that lower oil prices do not trigger a significant shift in economic fundamentals next year.

Hence setting a clear vision and economic plan is crucial, especially in providing clarity in terms of strategies and programmes on how to achieve the election manifesto. In addition, the government should put its priorities right to weather the external storms next year.

Addressing income and wealth inequality is laudable.

But before making the distribution of the economic pie more equal and just, the government must find ways to expand the pie.

All in all, 2019 seems to be a challenging year for the economy, where uncertainty and volatility will reach a new momentum and norm for at least a few years to come.

DR IRWAN SHAH ZAINAL ABIDIN

Associate Professor of Economics, Universiti Utara Malaysia and director, Asian Research Institute of Banking and Finance, Universiti Utara Malaysia

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