SOME say we are in for a long recession and any strong recovery ahead will likely take two to three years, hence the shape of an economic recovery ahead is like the letter “U”.
Some say we are now seeing some signs of hopes in the global economic recovery but be cautious at the same time as the world may see a secondary impact of an economic contraction and thus we may see a double-dip.
The letter “W” comes to mind with the above interpretation of the current state of the global economy.
Some say we are well past the worst and are in recovery path, hence there is no turning back. This summarises the V-shaped economy that some economists are predicting.
Some see a prolonged period of mediocre economic growth, ala Japan in the 1990s and hence the description of an L-shaped economic growth ahead.
U, W, V and L are not the only letters of the alphabet that can be used to describe growth in the coming years. There are several others that we should perhaps understand to describe economic conditions.
Six months ago, we were talking about the world entering into a depression – the “D” economy – the type that perhaps more than 90% of the world population has not seen as the last Great Depression was more than 70 years ago.
Fear ruled our investment instincts as we could not comprehend the “D” economy ahead.
Lately we have not heard anybody talking about the “D” economy as we are seeing multiple green shoots all over the world, enough for us to be convinced that a recovering economy is ahead – the “R” economy.
Interestingly, in the English alphabet, “V” and “W” come after “R” and hence economists’ expectations of whether the “R” economy will be a “V” or “W” is left to be seen.
We may see a “V” type recovery but as “W” follows “V”, the V-shaped recovery could very well be false hope if the economic recovery momentum is not sustained.
In Malaysia’s case, the just-released second quarter gross domestic product data confirms that we are in recession as we posted a second consecutive quarterly contraction in our economy.
While this was already widely expected, bets are now also placed that we will be out of the recession as early as the fourth quarter of this year.
What sort of “R” economy are we going to see post fourth quarter is left to be seen but it is heartening to note that our worst fears are now clearly unfounded.
Besides Malaysia, countries in the region have also posted encouraging second quarter economic data, with strongest growth posted by China with a 7.9% expansion followed by Indonesia and Philippines at 4% and 1.5% respectively.
Hong Kong, Singapore and South Korea posted smaller second quarter year-on-year economic contraction than Malaysia with readings of -3.8%, -3.5% and -2.5% while countries like Taiwan and Thailand still had deep contraction with 7.5% and 4.9% year-on-year falls respectively.
Hence, in terms of the pace of recovery in the second quarter, Malaysia still lagged the larger open economies like Singapore, South Korea and Hong Kong but did not fare that bad when compared with Taiwan and Thailand. However, the surprise package was indeed from Indonesia and Philippines. Question is, where do we go from here?
While a V-shaped recovery seems to be in the horizon, we have to be mindful of the subsequent challenges ahead as the US economy is still the pillar of global economy and if the US economy, which is driven by consumer spending, falters, it is likely the much talked about “W” may be in the horizon.
Whether it is a “V” or “W” economy ahead, it will definitely make an impact on policy responses globally as well as on markets, especially the current liquidity-driven market. As long as we don’t go into an “O” economy – running around in circles – we should be fine.
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