AN economic think tank, forecasting a post-Covid inflation-led contraction of the economy, said the government should use the downturn to build a different model for sustainable growth.

The Center for Market Education (CME), a boutique think tank based in Kuala Lumpur and Jakarta, said in a statement today that the model should focus on savings and investments rather than private consumption and government spending.

“We believe that savings and investments are the pillars for sustainable economic growth, while an economic model built on consumption and government spending is incentivising debt and inflation,” CME CEO Carmelo Ferlito said.

He said while there is still a high degree of global uncertainty and a domestic policy scenario yet to be defined, it, nonetheless, “invites” the government to take initiatives to promote financial literacy for more “informed decisions” to preserve the financial stability of the people and to do “whatever is possible to ease doing business”.

CME said there should be a relook into general regulations, banking structure and labour laws “so as to incentivise both domestic and foreign investments”.

It said the government should also be promoting a fiscal reform that while aiming at reducing income tax, strengthens enforcement and introduces a new good and service tax, and strengthening international free trade with straightforward and easy-to-implement bilateral agreements.

CME, reading Bank Negara Malaysia’s announcement that the economy grew 8.7% in 2022, the highest recorded in 22 years, said it is taking it “with prudence”, particularly those data in the years of the pandemic lockdown between 2020 and 2021.

“We have to avoid euphoria for the stellar performance, but also restrain from panic about the contraction, which is about to come,” it said.

CME said the economic data over the past three years showed the Malaysian economy grew at a rate just slightly higher than what was used to be the normal annual growth rate before the pandemic.

Furthermore, it said the average annual growth rate between 2020 and 2022 was 1.97%.

CME said other data, taking into account the consequence of the lockdowns and expansive fiscal and monetary policies, showed a gradual slowdown of the economy last year, with quarterly growth rates gradually decreasing, up to the negative performance (-2.6%) of the last quarter. 

“This means that economic growth is already showing signs of cooling down, and this comes mainly from a slowdown in private consumption, while investments seem to decelerate at a slower pace,” it said. – February 10, 2023.