The Global Economy in Turbulent Times

CHAPTER 104 Stimulating Times¹

On March 10, 2009, Prime Minister and Finance Minister Dato’ Sri Mohd Najib bin Abdul Razak introduced the much-awaited Second Stimulus Package (2SP), worth RM60 billion, or about 9 percent of gross domestic product (GDP).² Its size surprised many, considering the first package (1SP) in November last year was only RM7 billion. And, size matters. This is as it should be. The risks of doing less are far higher than the risks of doing more.

The world has changed dramatically since Christmas 2008. The recession that started in the United States and followed soon after in the United Kingdom, eurozone, and Japan has become global; indeed, the recession that is being felt across the world is now globally driven. World trade is shrinking for the first time in 50 years. Recession in the developed world has grown deeper and wider in the first quarter of 2009. The International Monetary Fund (IMF) had in January 2009 forecast slow global growth in the course of the year. On March 8, it now expects world growth to be negative for 2009 for the first time since World War II.³

Continuing instability (coupled with massive deleveraging) in the financial world, combined with a growing lack of confidence among consumers and businesses is depressing domestic demand across the board. Everywhere, governments are stimulating: Eurozone governments have committed €1.2 trillion to protect financial systems and had since pledged a combined €200 billion to lift their economies ...