FAST RISING COST OF LIVING WILL LEAD MALAYSIA SPIRALING IN TO THE ABYSS OF ECONOMIC DESTRUCTION. Najib had no choice but to withdraw subsidies and increase taxes due to the high level of leakages caused by corruption and insane wastage caused by a policy of patronizing the pirates in the public institutions. Najib's economic approach to reduce the deficits and the increasing cost of federal government borrowings at the expense of the rakyat will backfire. The great disparity in income distribution with the 40% of low income households will be squeezed and crunched by the fast accelerating cost of living resulting in a high rate of crime which we are already witnessing today and is expected to reach a distressing level. These are the result of income disparity already present and with the introduction of fast rising prices it will cause social economic chaos which we will soon see. I shudder to think what will be the impact and can't imagine the scenario that will be played out. Meanwhile umno is threading on very thin ice with their religious and racist slant created to deflect responsibility from their incompetence in managing the country and the economy. These evil play has a much more devious ulterior objective and are a direction from the very top echelon of the BN leadership. They know and are privileged to the actual figures and not what you think it is that are being reported, very much of their excrement are hidden under the carpet and in secret cabinets that is starting to emerge as they can't hide the stench no matter how much expensive perfume Rosie splashes on. Do not underestimate the play up of sentiments from their running dog, the MCA and the other coalition members as they fan both side of the fire trapping the unsuspecting opposition parties and their young leaders. Be prepared and be alert and it is about time the able and the bold step forward and work in unison towards the inevitable. Remember this that the evil lords sole objective is to stay in power by hook or by crook. Bloomberg report of Rising Cost of Living in Malaysia here:
Malaysians Seen Curbing Spending as Living Costs Surge: Economy
A woman buys corn from a food vendor outside the Petronas Twin Towers (KLCC) in Kuala... Read More
Jan. 7 (Bloomberg) -- Millions of middle-class Malaysians are grappling with the biggest increase in state controlled electricity and gasoline costs since 2008, threatening consumer spending growth and reasserting the country’s reliance on exports this year.
Since winning a May election, Prime Minister Najib Razak has unleashed a series of price increases to cut subsidies and improve state finances, crimping scope for companies to boost wages while spurring inflation. The moves, from a 14 percent jump in sugar costs in October to an 11 percent increase for gasoline in September and an average 15 percent to 16.9 percent climb for electricity this month, could slow private consumption growth by 0.9 percentage point in 2014, according to Alliance Financial Group Bhd. and Malaysian Rating Corp.
“Definitely it’s difficult,” Ng Wei Keong, a project engineer with two children aged 5 and 3, said in an interview at a December protest against another strain on his living cost -- an increase in the annual property assessment rate in Kuala Lumpur. “My kids will be without toys, no more vacation, no new cars and we must be very wise on spending money.”
Malaysia’s middle class, forged during the economic boom of the early 1990s, is bearing the brunt of the fiscal trimming as they grapple with a cocktail of record-high property prices, elevated household borrowings, and slower pay increases than lower-income earners. Rebounding exports are set to counter the spending squeeze, giving Najib scope to put consumers through the immediate pain of surging living costs as he shifts the economy toward market-based prices for commodities and energy.
Photographer: Goh Seng Chong/Bloomberg
A shopper buys a bag of sugar at a Jusco supermarket in the 1 Utama shopping center, in Petaling Jaya.
‘Some Pain’
“There will be some pain in moving towards market-based pricing of the currently subsidized-costs of essential food items, fuel and energy,” said Suhaimi Ilias, chief economist at Maybank Investment Bank, part of the country’s largest lender. “Over the long term the economy will gain from a generally more efficient economy.”
Underscoring the threat to the domestic demand that held up growth in the past two years as exports faltered, consumer confidence in the third quarter fell to the weakest since 2009, according to a Malaysian Institute of Economic Research measure. An index ofconsumer stocks barely rose in the second half of 2013, gaining 0.02 percent compared with the benchmark’s 5.2 percent climb.
The “headwinds to domestic demand in the near term” would make Malaysia’s economic growth increasingly dependent on an export recovery, Citigroup Inc. said in a November report. The banking group predicts a 5 percent expansion in 2014, at the lower end of the government’s forecast range, as it anticipates more fuel price increases that will cut discretionary incomes by a net 2 billion ringgit ($608 million), or 0.2 percentage point of nominal gross domestic product.
Sandwich Class
Those in the middle-income group, who make as little as 3,000 ringgit a month, don’t benefit as much as other segments from planned government handouts or income tax cuts, said Wan Saiful Wan Jan, chief executive officer at the Institute for Democracy and Economic Affairs, a Kuala Lumpur-based think tank.
Malaysian families who earn 3,000 ringgit to 4,999 ringgit a month made up 27.8 percent of households in the population of about 30 million, according to government data for 2012, up from 4 percent in 1989. About 39 percent of households fall below that bracket, while the remainder of the middle class and the highest income groups -- those earning 5,000 ringgit and above - - account for 33.6 percent.
Inflation Pressure
“The bottom 40 percent is helped by the various welfare programs, while the top 5 percent will benefit from the trend to reduce income tax and they are generally better off in a liberalizing economy,” Wan Saiful said in an interview. “For the middle income group, nothing has been done to help them but there are so many things that they can’t afford anymore.”
Inflation in Southeast Asia’s No. 3 economy may accelerate to 2.9 percent this year and a seven-year high of 3.3 percent in 2015, when Najib plans to introduce a new consumption tax, according to Bloomberg surveys. In contrast, the Malaysian Employers Federation estimates lower salary increases and bonuses in 2014 in the private sector as business costs rise.
“The faster inflation rate amid slower income rise erodes purchasing power, which will impact the consumer spending part of GDP,” said Maybank’s Suhaimi. He predicts the central bank will keep interest rates unchanged even as inflation reaches 3.5 percent in 2014, to avoid further deflating consumer sentiment. “The risk to growth is pretty much coming from consumers.”
Pay Increases
Executives will get a 5.63 percent average increase in salaries, down from 6.31 percent in 2013, and non-executives will get a 5.65 percent raise from 6.7 last year, according to an MEF survey of 257 companies. Lower-paid workers will fare better -- in addition to benefiting from a minimum wage, non-executives will get a bigger bonus this year while executives will get a smaller payout.
Government data show that the most well educated people in the workforce got the smallest wage increase in the two years through 2012.
“What we earn cannot cope with the rising cost of living,” said Selena Tay, a freelance writer in her 40s who lives with and supports her elderly parents. She plans to cut out purchases of clothes, shoes, bags to save money for food. “The government is strangling us. We are now scared to read the daily newspaper because every day, the price of something is going up.”
Political Gamble
Najib is making a political gamble as he starts to dismantle decades of subsidies to address fiscal risks identified by Fitch Ratings, which cut Malaysia’s credit outlook in July. Within months of the May election that returned his ruling Barisan Nasional coalition to power without winning the popular vote for the first time, he scrapped the sugar subsidy and unveiled plans for a goods and services tax at the risk of further alienating the urban voters who turned against him.
The next election is due by about mid-2018. Najib’s predecessor Abdullah Ahmad Badawi, who introduced even bigger increases in electricity and fuel prices after the 2008 general election, stepped down to make way for Najib mid-term in early 2009.
Forty-nine percent of respondents in a survey released in December say the country is heading in the wrong direction, with rising living costs and unfavorable economic conditions cited as the main reasons, according to the Merdeka Center for Opinion Research.
Some Malaysians have already taken to public protests against the price increases. In December, hundreds gathered in front of the city council office in Kuala Lumpur to rally against an increase in property taxes. On New Year’s Eve, about 4,000 people joined an illegal protest in the capital to demand lower living costs, disrupting a countdown concert, Bernama reported.
“My biggest worry is, financial difficulty will lead to ethnic tension,” said Wan Saiful. “You go to a Malay area in Kuala Lumpur, Kampung Baru or Sentul, you already get the sentiment that they are accusing the Chinese of taking away all their economic wealth. If you go to poorer Chinese area in Cheras, Balakong, the sentiment you’ll get is the ethnic Chinese will say of course they are poor, because the ethnic Malays are the ones being helped by the government.”
To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net
To contact the editor responsible for this story: Stephanie Phang atsphang@bloomberg.net
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