Gloomier and uglier by the day...

In this stunning period of economic downturn bordering on the collapse of the world economy, there are those in government and economists in think tanks who are still in denial.

They argue that their economies will ride out the looming global economic catastrophe. It’s as if these economies have either suddenly de-linked from the international economy.

Or, more spectacularly, it’s as if they have somehow miraculously missed the ongoing internationalisation (or what others call, in post-modernist terms, globalisation) of their economies.

When just about every economy in Asia, and in particular Southeast Asia, is looking down the barrel of one mother of all recessions, one economy in the latter region thinks it’s generally immune from the global fallout.

In fact it says that after a small hiccup in 2009, it’ll bounce back strongly by 2010.

Rubbish.

That economy is Malaysia. Of course. And the think tank? The Malaysian Institute of Economic Research (MIER).

You’d have to ask which tea leaves the Abdullah government and MIER have been reading. Or if they have been wearing horse blinkers.

Look around. What do you see? A quagmire in the region, and indeed the world, that’s becoming deeper, rougher and that's only going to get a lot uglier than the recession that was spawned by the so-called financial crisis in 1997.

Japan is in severe recession, and potentially facing another round of a deflationary spiral, as it did through the late 1990s. The minus-zero real official interest rate has not helped the Japanese, with consumers and business still uninspired to spend now as they were more than ten years ago.

Nor has a high yen (vis-à-vis the greenback), which is making Japanese exports insufferable everywhere, softened the blow to the Japanese real economy.

And neighbour South Korea is also in severe recession, with exports, on which that economy depends so heavily, falling precipitously. And you know how dire it is in Korea when that country's trade union movement, renowned for its militancy, has, curiously, been extremely silent.

Unemployment ballooning in China

China, likened by its apologists to become the next geo-economic and geo-political global superpower this century, can no longer boast sustained double-digit gross domestic product growth rates. Beijing has consistently trimmed its forecast and then began to slash it by half what it used to muster.

But domestic and foreign investments are flagging. So, too, falling domestic consumption. There have been more and more business and factory closures. Unemployment is ballooning. All these developments have the very real potential to cause fierce political trouble for the ruling so-called communist regime dominated by corrupt octogenarians.

India, the other pretender to global superpower status on a scale equal to China’s, also has not escaped economic doldrums, especially following the Mumbai attacks by Islamic terrorists and, more recently, the corporate shenanigans, on an Enron scale, by Satyam and its billion dollar accounting fraud and embezzlement by the family who owns the company.

That's just the tip of the iceberg, with more Satyams to come. Like the United States, the EU economies, Australia and Japan, the Indian government is now in the throes of slashing key rates, easing limits on foreign investment in corporate bonds, and rolling back some anti-inflationary measures, like raising government spending to unprecedented levels.

Prime Minister Manmohan Singh is desperate to come up with yet another fiscal stimulus package if his precariously straddling Congress (I) party is to survive the rout by resurgent rightwing Hindu ultra-nationalists.

And forget Indonesia, the Philippines and Thailand: they remain, by-and-large, basket-cases. Thailand, with its ceaseless political crises, is paying a hefty economic price for all of its political folly. Now its tourism sector is expected to nosedive.

The longer the global economy plummets to its full depth, the worse for Thailand. Singapore, considered the bellwether economy in Southeast Asia, is already deep in strife. It’s almost wholly trade dependent, re-export economy is sinking deeper and deeper into the mire. Even the top minds in the Monetary Authority of Singapore are as lost as Japan’s central bank or the powerful Ministry of Finance to figure a way out of the growing economic mess.

Malaysians face looming economic woes

There isn’t one economy in Asia, let alone in the western world, that is immune from the carnage being wrought by what began as a credit crisis, then a credit squeeze, and which very quickly flamed a full-frontal economic crisis.

The political and social repercussions are huge and frightening. Iceland, for example, has already lost its government, after it lost its economy to the galloping global crisis.

Yet, somehow, the Malaysian government has the idiotic idea to still deny, much as Australia did in the early stages of the crisis (and to some extent it still does), that it can, and will, withstand the effects, or even avert, the full rout of a global recession.

The Abdullah government is doing its darndest to deny the inevitable impact of the crisis.

The incompetent and corrupt government, run by Umno, is so frazzled that it is fanning sideshows on political crossings between Pakatan Rakyat and Umno (including its poodle, the Malaysian Chinese Association), as a welcomed distraction from the looming economic woes facing Malaysians.

To argue that Malaysia will escape the economic downturn is about as responsible of the Abdullah government as its hideously racist apartheid policies and turning its back on corruption that festers like a venereal disease within the ruling Barisan Nasional regime.

The only motive for making such a bizarre and increasingly banal claim is political, especially at a time of growing domestic political crisis and an imminent leadership change within Umno. It says the capital account of the economy, and fiscal state of its budgetary policy, thus the health of its financial system, are in good enough shape to pull through without too much difficulty.

Rubbish.

The same argument could be made of Japan, and Singapore, among others. Both countries have strong balance sheets. They have massive stores of savings. Only problem is that they, like Malaysia, are highly export-geared economies.

Now that their exports are suffering so badly, because their export markets are suffering just as much, if not more so, it is clear that no amount of domestic savings can be mobilised to boast domestic demand — at least not quickly enough, and without any guarantees of success, whatever the lag time, which is usually between six and nine months or a year.

51mil jobs may be lost this year

Certainly, in pre- and post-Davos 2009, nobody in the western world is predicting, or is brave enough to predict, a turnaround in their fortunes any time soon. Not even Japan.

Even if only anecdotally for now, this global crisis is looking every bit far worse than the Asian crisis of the late 1990s. In fact it’s the worst economic crisis since the 1930s Great Depression.

The longer the world economy’s protraction the worse for every economy that depends on international trade and investment flows for its hard currency earning capacity.

China is feeling it now. Indeed, China will probably manipulate its currency to try to stave off the worse effects of the crisis on its real economy. Malaysia could too. To be sure, Malaysia is much more vulnerable to the global crisis than China.

The Malaysian government isn't divulging this yet but several multinational corporations in Malaysia have already begun shedding workers by the thousands. That's just the first round of sackings.

All this will only sap more consumer and business confidence from the economy. If they stop manipulating their economic modelling, Bank Negara and MIER will show the economy's leading economic indicators looking as sick as chop-suey.

The first barometer of confidence is always consumer spending. If this sinks — it does not matter how good or strong an economy’s balance sheets are — when consumers stop buying, they’re effectively killing off total aggregate demand. When this happens, businesses will reduce production levels and shed labour whilst running down inventories.

This is already happening, in numbers greater than any government has dared to predict, let alone admit. Last week week, almost 80,000 jobs were shed — wait for it — in just one day, globally. More than five million Americans have lost their jobs since September last year.

There's more. The International Monetary Fund predicts that world gross domestic product will be just 0.5 per cent this year. I'll bet it will revise its forecast downwards within a month or two.

The United Nations says 51 million jobs will be lost, also this year. And world trade has collapsed by nearly 45 per cent, in annualised terms, in the final three months of last year, according to new IMF figures. These figures expose the staggering depth of the global financial crisis that is chewing up real economies everywhere.

Consumption plus Investment plus Government (spending) plus eXports minus iMports equates to Aggregate Demand. That's Economics 101. C is slowing - rapidly. I is virtually dead. So, too, X and M. What is left is G. Economics 101 says G must be increased exponentially, and the multiplier effect will kick in to run through the economy in time. The main thing is putting a floor under the economy.

By also removing anti-inflationary measures, such as reducing interest rates, consumer confidence will be boosted to ensure the domestic economy is rolling along. That's what every government is thinking, and every government is pursuing this mantra, more as a kneejerk-response.

Stimulus packages won’t work

It's not going to work. Here's why. When the world is not buying your Xs, and neither are you (with your Ms), and I is dead, or quickly shrivelling up like shrimp, you cannot say, with any degree of certitude, that C will continue regardless, or indeed that you can throw more money (budget surpluses, or borrow money, or print new money) at consumers and drive them into the frenzied spending of the past.

Round one stimulus packages have worked anywhere. We know that. Round two packages are being devised right now. If you press US president Barack Obama to give you specifics of his newest stimulus package, he'll stumble. He'll stumble because even he cannot know where to start kicking life back into the economy.

Stimulus packages won't work. Financial gurus are good at saying lately that all it’ll take is for confidence to return and all will be hunky-dory. Anybody can say that. But ask any level-headed psychologist and he or she will tell you that people everywhere are genuinely scared for their future and it's this that enlarges the abyss.

If consumers get a whiff of the fact that their economies are staring at an abyss, they’ll stop spending on everything other than the essentials, and even then that spending will be reined in. Discretionary spending vaporises because discretionary income has also vaporised. And that's even before real incomes are either eroded or lost, totally.

Governments can print money all they like, and throw good money after bad, but in this highly inter-linked world economy, everybody is going down the gurgler, and quickly, and at the same time.

When the economy does turn around, it’ll be slow, but it’ll be the citizens who will end up paying for the government’s stupidity in its economic crisis management. There’ll be mountains of debt to repay for a long time. And that means higher taxes, direct and indirect. Which is why even the horrendously incompetent Abdullah government cannot and must not be allowed to engage in reactionary or ad hoc policy-making.

The worst, or good thing, depending on your point of view, is that nobody dares to say any economy, including the world’s largest, the United States, has bottomed out — no matter how well the Wall Street bourse trades. I heard one leading economist in Australia say that the crisis will end within six months. I also head a pyschic say the turnaround will come in August this year. Everybody should get into reading tea leaves.

Share markets can and will go up, and they will go down, sometimes by big margins. Every bounce is a dead cat's bounce. My bet is that those who are heftily cashed up, and have an appetite for risk, are bottom-fishing in sharemarkets. Or that, as it appears, listed businesses are offering investors buy-back deals, which will spur bourses upwards. But for how long?

The problem remains. Financial toxic waste hasn't been removed, let alone cleansed. There is a credit squeeze still, and it’s not just in the US or Europe but everywhere. Key interest rates can come down to zero, or even minus zero, but the cost of borrowing funds by banks — the interbank rates, or LIBOR — are enormously pricey.

That makes borrowing very pricey. Scandalous, unscrupulous bankers lending scandalously and unscrupulously to the least secured borrowers have overnight become risk-averse. Hooray for them. But not for governments — including the one in Southeast Asia that says it’ll ride out the coming gloom, including the possibility of a global deflationary spiral. And that’s yet to be played out.

MANJIT BHATIA, an academician and writer, is also research director of AsiaRisk, a political, economic and risk analysis consultancy in Australia. He specialises in international economics and politics, with a focus on the Asia-Pacific.