US recovery to happen in 2012, MIER director looks to US recovery for Malaysia's hopes

From the Business Times:

THE recovery of the US economy, the key to the world economic revival, will probably happen in 2012, says Prof Emeritus Datuk Dr Mohamed Ariff Abdul Kareem, executive director of Malaysian Institute of Economic Research (MIER).

"Recently, there were some signs indicating that the crisis is easing, but it is still on. What I am saying is the world economy is still contracting at a slower pace.

"The US, in particular, showed some signs of let-up in the sense that the second quarter registered a much lower contraction than expected," he said in an interview.

The forecast was -1.5 per cent growth in the US but it turned out to be -1 per cent but the fact remains that the economy is still contracting.

Mohamed Ariff said the story is pretty much the same every where else.

"Europe is also contracting, albeit at a low and slower pace. The situation is the same in Japan, South Korea and many East Asian countries.

"This has led some people to say the worst is over and that there are also the so-called 'green shoots' (indicators of economic recovery) here and there which are very promising.

"But to me, the worst will be over when the economy stops contracting. (Currently), the global economy is still contracting.

"Of course, there are a few cases like India and China, where growth is positive. Indonesia is also having positive growth but their growth is way below the big crisis level," he said.

Mohamed Ariff said China showed some improvement in the second quarter, registering 7.9 per cent growth, above the 7 per cent growth forecast.

He said the recession may end but the recovery will not begin. "A recovery to me is getting back to growth trajectory which I think probably will take two to three years. So 2012 is probably the best bet for the world economy to be back on track."

Mohamed Ariff also warned that there are serious limits to stimulus packages that a country can put up and there are also interest rates that have been pushed down.

As to where Malaysia fits in this kind of a global picture, Mohamed Ariff said Malaysia is a trade-dependent country, noting that 3 per cent growth in the US will "help our economy a lot more than the double-digit growth in China".

"This is because China's growth does not spill over to the rest of the world like the US does. So this is why I think China's growth is largely internalise.

"It is not externalise like in the case of the US. This is why I think we really have to wait until the US economy recovers," he added.

Looks like someone in the economic board here in Malaysia is on board. Compare this with Mr. Tan Teng Boo who proclaims China's growth will bring Malaysia out of a recession. It's straight forward math, if one part of your growth engine takes a big hit, other parts need to make up for it. But if that part is a very significant part of your growth engine, the other parts need to make up a lot more in percentage terms to cover the loss.

Last I checked with 20% y-o-y in trade decreases, China wasn't making up for it.