KUALA LUMPUR, Sept 27 — Malaysia needs to take proactive measures to promote new areas of investment and production amid an escalating global trade conflict, instead of simply signing trade agreements which do not give the country much advantage, said prominent economist Prof Jomo Kwame Sundaram.
He noted that the global economy was entering a period of likely protracted trade tension which had developed due to the US administration’s focus on bilateral conflicts.
“As you know, there has been little growth of trade in over a decade. And also, it is important to recognise that when there are trade problems, different governments react in different ways and there is a tendency as well to be inward-looking,” Jomo said.
He was speaking to reporters ahead of the release of the United Nations Conference on Trade and Development’s (UNCTAD) “Trade and Development Report 2018: Power, Platforms and the Free Trade Delusion” here today.
According to the report, the world economy remained on shaky ground a decade after the 2008 financial crisis, with trade wars becoming a symptom of deeper malaise.
While the global economy had picked up since early 2017, growth remained spasmodic with many countries operating below potential, it stated, adding that this year was unlikely to see a change of gear.
The report pointed out that any serious escalation of trade tension could, through heightened uncertainty and reduced investment, bring about more damaging consequences in the medium term and these could be particularly serious for countries already facing financial distress.
Jomo said many emerging markets would experience a great deal of stress due to the change in international monetary policy, particularly with fund outflows to the US as it raised interest rates.
The US Federal Reserve has raised interest rates twice this year and is likely to do so for the third time during the Federal Open Market Committee meeting on Sept 25-26.
“The emerging markets will be much more vulnerable to the financial crisis, especially in areas with asset price bubbles such as property bubbles which are financed by debts. So the authorities have to be prudent, and perhaps unpopular, to reduce our vulnerability to such crisis,” said Jomo.
He stressed the need for prudence to avoid potentially heading towards a recession.
“The likelihood of a financial crisis, probably due to external origins, will be greater. When you are reckless with your economic management, you are more vulnerable,” he explained.
Jomo also pointed out the need for Malaysia to think thoroughly and formulate appropriate policies to benefit from the digital economy.
“We think that we are getting good deals by giving up precious data for free in exchange for services by big digital monopolists. This data has been used to enhance the profits of the big players.
“We should learn from recent restrictions imposed by the European Union on Google and how they may be relevant to economies such as Malaysia,” he added. — Bernama