Let's look at the terrible and horrible news of our slow GDP growth which was announced yesterday (here). To wit:
"Malaysia’s annual gross domestic product (GDP) growth moderated to 4.3% in 2019 — the lowest level since the Global Financial Crisis in 2009. The country’s fourth quarter of 2019 (4Q19) GDP growth slowed to 3.6%, which is the lowest in 41 quarters since 3Q09, according to Bank Negara Malaysia (BNM) statistics released."
In economic, there is a concept called the stall speed of growth. When an economy's growth rate starts to lose speed, economists begin to worry about how slow it will grow and whether it will begin to crash into a recession. As economic activity slowdown, the growth burden is shouldered more and more by consumers. The consumers' ability to spend depends on their income creation, which will always decline in a sputtering economy. In the US, economists believe the stall speed of growth is around 1.4-1.5%. If it goes below this level, the economy is likely to go into a tailspin and crash into a recession. For more, check out this article and the chart below.
Chart 1: U.S.'s GDP Growth (Source: Bloomberg)
What's Malaysia's stall speed of growth? Based on the chart below, we can plot a line which demarcates the point below which the economy can crash into a recession. In the past 5 instances when the economy's GDP growth on a full year basis crashed below 4%, we had 3 recessions (1985, 1998 & 2009) and we narrowly escaped recession in 1975 and 2001.
Now we can see the significance of the drop in GDP growth below 4% mark. As the Chinese saying goes, one swallow does not make a spring, the same goes for one slow quarterly growth does make a recession. Unfortunately, many Malaysians are convinced that we will be heading into a recession for the simple fact that none of our Government leaders is concerned about the state of the economy. They are only concerned about their ability to attain & retain power. I sincerely hope that Dr. M would remember the Roman expression, Nero fiddled while Rome burned, and focus his attention on the economy and the rakyat.