Coping With Recession

Coping With Recession
11 June, 2008

The economic recession is a phenomenon around the world and there is no exception for our country. Therefore, we must face the reality and accept lower economic growth rates.

Translated by SOONG PHUI JEE/ Sin Chew Daily

Danger could be sensed everywhere in the recent international share market. Last Friday (6 June) the U.S. Dow Jones index plunged nearly 400 points or 3.13%, while crude oil prices surged a new record high, several bourses fell in tandem, including Japan, Taiwan, Korea and Malaysia markets on Monday (9 June). The global stock market crash also affected foreign exchange markets as some countries suffered a devaluation of currency. Besides, the bad news from all around the world like floods in China and Hong Kong and the increasingly serious global food crisis are getting people worried that the 1930s world economic crisis might repeat itself. Thus, the people are very much concerned about the measures taken by our government this time.

Firstly, the current international economy issue, especially oil prices hikes, is the most delicacy problem. A year ago, no one predicted and warned of such serious economic crisis. The eight industrial countries issued a statement after having a meeting with China, India and Korea in Japan to call for an increase in oil production as they were worried about oil prices might lead to economic recession. On the other hand, the situation in the Middle East turned into a tension as Israel threatened not to deny the posssibility of attacking Iran, making the international oil prices surged to US$139 a barrel. Oil prices and stock markets are affectng each other and the world is currently caught in the economic downturn. It is characterised by price falls of shares, real estates, and other assets, currency devaluations, decline in economic growth, upsurge in unemployment rate, reduction of real wages and the tension in inflation. Today's level of economic recession is in fact not far away from the one in 1930s.

"Therefore, we must face the reality and accept lower economic growth rates."

The Federal Reserve Bank of the United States has lowered interest rates several times and even the Chairman of the Board of Governors of the Federal Reserve System Ben Bernanke has issued a rare warning that a weak U.S. Currency would increase the risk of inflation, but this has fallen on deaf ears. In other words, this wave of economic problems arose from the credit crisis and the government has failed to come up with effective countermeasures, making the people more and more pessimistic about the economic prospects.

Secondly, the world's major economies are currently at different stages of the business cycle. This phenomenon will only compound the problem.

Currently, the U.S. Economy is the dumps and its unemployment rate has risen to 5.5% in May, setting a new record high in 22 years while its growth rate dropped substantially and its corporate earnings growth is sluggish. As the United States is the world's largest economy, it leads the world into economic recession. Japan is the second world's largest economy with the largest trade surplus, but its continuing recession and currency devaluations is causing great pressures to other industrial countries.

Thirdly, the chain effect of current international trade and financial activities has been greatly enhanced. For example, the devaluation of the yen has immediately weakened other Asian currencies while the U.S. stock market crash also led to global market fall. It weakens the stability of the international financial system.

The economic recession is a phenomenon around the world and there is no exception for our country. Therefore, we must face the reality and accept lower economic growth rates. For example, we might have only 5%-6% economic growth rate this year. Although it is lower than last year, it is relatively high compared to other countries. In a highly uncertain environment, it is more important to go for stability rather than growth. As long as we can prove that our economic performances are far better than most of other countries, international capital will certainly return and stabilise our stock market and currency.

As for the government's measures to increase fuel prices, most outsiders hold prudent views. In addition, the government is actively seeking for ways to stimulate domestic demand to reduce the harm caused by the slowdown in growth. However, the government's administrative efficiency has long not being enhanced, resulting in serious damage of the nation's competitiveness. This gets people worried as measures to stimulate domestic demand has to rely on the large-scale efforts from various ministries of the government. Enhancing efficiency would be the key to success in maintaining moderate economic growth. The government should quickly develop an effective scheme to cope with oil price hikes.