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This article first appeared in The Edge Malaysia Weekly, on November 2 - 8, 2015.

 

The global economy will continue to experience volatile times in 2016.

Global economic confidence has dropped to a four-year low, says Datuk Lukman Ibrahim, president of the ACCA Malaysia Advisory Committee, citing the ACCA-IMA Global Economic Condition Survey for 3Q2015. Confidence in emerging markets has suffered the most, he tells a panel discussion at the Malaysia Institute of Accountants conference, themed “Today’s Synergy, Tomorrow’s Reality”.

“Emerging markets have suffered, and it’s quite scary. Many firms have cut back their investments, and more than 40% of firms have frozen hiring and carried out job cuts,” he says.

Lukman, the moderator at the discussions, points out that while the main concern of businesses in 2Q2015 was rising cost, this has been replaced by the declining income in the third quarter.

“If you go further, there are also fewer profitable opportunities compared to six months ago. Combining higher costs, declining incomes and lower profits, it is not really good.”

Panellist Shan Saeed, chief economist and  investment strategist at IQI Group Holdings, is pessimistic when it comes to the 2016 outlook for the global economy. “I don’t see the market settling down very soon. I expect the (gloom) to continue till 2020 or even beyond.”

Despite economic data showing positive signs that the US economy is recovering, Saeed opines that there is no real recovery happening. “The recovering figures coming out of the US on employment, inflation and growth do not paint the real picture.”

He notes that a survey conducted by Google Consumer Survey for personal finance website GoBankingRates.com shows that about 62% of Americans have less than US$1,000 in their savings accounts.

The survey, conducted in October this year, covered more than 5,000 adults. It  found that 21% of the Americans have no savings account.

“So where is the US economy heading?” he asks, stressing that a recession is not a business cycle, but a consumer cycle that will eventually impact businesses and the economy on the whole.

Saeed says while some see quantitative easing (QE) as a solution to boost US growth, it is not sustainable.  “By printing money, the US government has borrowed future fuel. US companies are holding US$2.7 trillion in cash overseas. If the US is recovering, companies like Google, Apple, IBM and HP should have repatriated the US$2.7 trillion back, but they din’t because of the stronger US dollar.”

He is also not optimistic about a recovery in Europe and Japan, both of which are implementing their own QE programmes.

Saeed says there are only “a handful of countries” growing within the European region. These include Germany, Austria, Poland and Belgium. If the next economic crisis hits, Greece, Italy and France may be the victims.

Saeed, however, does not share doom and gloom views about China. He is especially bullish on the renminbi. He points out that although China has lost US$300 billion because of the devaluation of the  renminbi, people have forgotten that the  currency has appreciated 34% against the US dollar since 2007.

A catalyst for the  renminbi going forward is its possible inclusion into the IMF’s basket of special drawing rights. “Imagine the value the  renminbi will gain. I have zero dollars, euro and pounds. I think the smart investors, they take positions on the Swiss franc,   renminbi and Singapore dollar,” says Saeed.

On the domestic front, Hiswani Harun, deputy secretary general at the Ministry of International Trade and Industry (MITI), says exports will continue to drive the economy as the ringgit weakens.

The government, she says, is intensifying efforts to promote exports.  “We have set up the National Export Council to strategically look at how we can grow exports, not just in traditional markets but also new markets like Africa.

“We have also intensified our export promotion through about fifty Matrade officers around the world and other related agencies.”

Besides the Trans-Pacific Partnership Agreement (TPPA), which is a major free trade agreement (FTA) signed by Malaysia and 11 other countries, Hiswani says the government is looking to sign more FTAs to create new market accessibility. She cites the Regional Comprehensive Economic Partnership (RCEP), which the government is in the process of negotiating.

Not as well known as the TPPA, RCEP is an FTA between the 10 Asean countries and six other countries — China, India, South Korea, Japan, Australia and New Zealand. This combined market has a population of more than three billion people and accounts for about 40% of world trade.

“We should look at these agreements as an avenue for us to capitalise on our export products and penetrate other markets … We (the government) are building capacity for local businesses to venture into other markets through preferential agreements we negotiated with our FTA partners,” says Hiswani.

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