IF the third quarter data for this year can be any indication of the state of the economy, I think we should be concerned.
The worst is behind us, but we are not out of the woods yet. The growth momentum moving forward appears to be far from certain.
The 2022 Budget projected that next year would be a year of recovery.
This was also what the 2021 Budget extrapolated for this year: a growth rate of 6.5 per cent to 7.5 per cent. We will miss this target again, like the 2020 Budget.
Even without the Covid-19 pandemic, like in the 2019 Budget, the target was missed.
For this year, the forecast growth rate is revised to three to four per cent.
It is difficult to imagine a growth rate of three to four per cent as a path to recovery, considering the low base effect of a the economy contracting by 5.6 last year.
And now, under the 2022 Budget, a projected 5.5 to 6.5 per cent growth rate for next year.
Will the target be achieved this time? Health experts have warned of a new wave of pandemic infection if no intervention measures are put in place.
Evidently, our economy can no longer afford another lockdown or any form of it in the near future.
The pandemic-induced economic challenges we and the whole world are facing is unprecedented.
But beginning in the second quarter of this year, many developed and developing countries seem to have moved into a recovery mode.
Thus, a contraction of 4.5 per cent of our economy from July to September this year is a cause for concern when Singapore recorded 6.5 per cent, Indonesia recorded 3.5 per cent, the Philippines recorded 7.1 per cent, the United States recorded 4.9 per cent, China recorded 4.9 per cent and South Korea recorded four per cent.
It is more worrying when even before the economy entered the third quarter phase, the government launched the RM150 billion Pemulih stimulus package to sustain the economy as a result of lockdowns.
In the third quarter of this year, all sectors were in negative territory, with the construction sector hit the hardest with a contraction of 20.6 per cent.
On the expenditure side, only the government, or the public sector consumption, recorded growth at 8.1 per cent.
Even that number is less compared with the previous quarter, which was 9 per cent. Net exports, on the other hand, contracted 37.5 per cent in the said quarter.
More worrying is the declining trend in investment, as seen in the gross fixed capital formation data, where it contracted by 10.8 per cent.
Actually, if the third quarter economic data is analysed from a quarter-on-quarter seasonally-adjusted basis, the economy would be in a technical recession, since it has contracted for two consecutive quarters: 3.6 per cent in the third quarter and 1.9 per cent in the previous quarter.
Under the 12th Malaysia Plan (12MP), the targeted economic growth rate is 4.5 to 5.5 per cent per annum on average starting from this year to 2025.
Even the government projected higher revenue collections beginning only in the second half of 2022.
These targets would be difficult to achieve if the government keeps on missing the gross domestic product (GDP) targets laid down in the annual budgets.
It also has severe implications in terms of the fiscal consolidation agenda, especially to reduce the fiscal deficit target at 3.5 to three per cent.
The other crucial issue is job creation and retention.
Under the 12MP, the unemployment rate is targeted at four per cent by 2025. In Malaysia, it is estimated that a one per cent increase in GDP will lead to the creation of about 70,000 jobs.
The unemployment rate, as well as the fiscal deficit target, would be difficult to achieve if the authorities are unable to stimulate the growth rate, what more with the expectation of interest rate normalisation taking hold by next year.
The writer is associate professor of economics and head of Political and Economic Risk Research Unit,
Universiti Utara Malaysia
