The International Monetary Fund yesterday roughly halved its growth forecast for Asia to 2.7 per cent, on worsening expectations for China and South Korea. Just two months ago, it had expected Asia to post 4.9 per cent growth in 2009.
While Asia was not the epicentre of the current crisis, Asia "has been hit hard", said IMF managing director Dominique Strauss-Kahn. "A worse outcome cannot be ruled out," he said at a briefing in Washington.
His words should dash hopes that Asia would experience only a mild downturn. This, in turn, means Malaysia needs to do much more, and do it faster, to cushion the impact of the year ahead. More importantly, the government needs to lay important groundwork to hasten the recovery that the IMF expects to come in 2010.
So far, the government's track record has been disappointing.
Since the RM7 billion from its first stimulus package, announced in November, has yet to reach the ground, few expect much at this time from the second stimulus package which is to be unveiled this month.
Little else has been done other than glossing over bad news and assuring Malaysians that the country's financial sector is buffered from the global crisis.
Retrenchments appear to be gathering speed, as multinationals mull over three-day weeks. Malaysia's top trading partners — Singapore, Japan, the United States, China and South Korea which are destinations for 50 per cent of our exports — are in recession. A massive reality check is just around the corner.
The problem is the country has relied far too long on initiatives to boost public demand, through stimulus packages and in the past massive infrastructure investment, to get through times like these.
What the government should have been doing, and needs to start doing today, is implement policies that will unleash domestic demand. Domestic demand is household demand, and household demand is boosted when income improves, so measures like tax breaks and tax cuts will have the most immediate impact.