Here are some of thoughts that were playing in my mind when we are talking about the current downturn in the domestic economies to be precise on the Malaysian consumer spending. Perhaps a little bit of my info with you all that will give you the clear picture where we are heading if the current negative ripple effects of the Financial Crisis are not being handle properly.
To be honest I have a friend from my school days in
When you discuss about consumer spending and growth, the enemy is not only the inflation per se, but also deflation. Our consumer do realize that how the current crisis drives the policy makers nuts to introduce numerous counter measures to encourage consumers spending by deflating every materials on the markets shelf. If such a move were done in harsh measures, the consumers will get smart in realizing that the longer they'll wait, the better off they are, so there is no reason to rush. This is what we are seeing today in every hypermarkets where there is basically no drives for Christmas spending - and we know that during Christmas the "haves" usually went out in spending riots. And we know from most of our observation that how Pareto law play an important part as a deciding factor for the consumer to buy coveted items such as Gucci, Armani, Adidas (just to name three), and these products drives growth and profits for future economic cycle.
One of the stark observations nowadays - how the dark prospect of looming layoffs and tightening credit has crushed consumer confidence to the lowest levels. As such, our consumers even though with the mighty purchasing power that they possessed were very particular and discerning in using their money/ purchasing power to buy goods. That is when the CONFIDENCE BUILDING MEASURES is vital to coalesce the consumer into smart spending. Spending is needed and is very vital for our economy which is driven most by the consumer spending (try to see how many stall, stores and warehouses in your areas - not to mention that only in Malaysia foodstall is opened 24 hours a day). When there is no spending, there will be no investment, and when there is no investment, there would be no growth or economic cycle. One of the most important factors where policy makers always neglect or overlooked is that market economies needs confidence and optimism for it to grow. You do not invest if the prospect of your future investment is dark, which means you do not innovate or work on any ideas that can bring about growth or profits. With profits comes capital, and with capital comes entrepreneurships and businesses.
We saw that in this upcoming two or three months and maybe the first quarter of 2009, most of the domestic consumers will prohibit themselves from spending. They would lose any passion for owning any consumer products. As such, hypermarkets and most of the business store would try to trim down their inventory to the levels it will only generate enough capital for it to pay their electric or water bills and that capital will not be used for future investment or business innovation. If inventory is decreased, most of the collateral growth will halt to a freeze and many of the suppliers, craftsment and even those that were selling nasi lemak every morning will feel this pinch. Business innovation here means not only the R&D of the new products will be stopped but also the stoppages of domestic recruitment of personnel that were the main engine for ones business entities growth. Unemployment would rise and government need to spend for to built the un-needed social safety nets.
Inflation and deflation need to be handled delicately. We need to contemplate both consequences and options for it to be stable. If we concentrate more on the build up of the new demands, I think that would enlarge the economic cake and create an opportunities for equity participation especially to those that lost their jobs due to the financial crisis. This crisis if handled properly and well, will only last up to two years. But if we introduce counter-measures to growth then the next 10 years to come we will only see Malaysian struggling to pay debts. Concentrate on the new demands that would drive the consumer crazy to spend and the business sectors run riots for new investment. For an example, if i-phone can be brought up to Malaysia with all of the menu options it has (GPS, Internet browser etc), I believe consumer spending would be interesting again.
to be continue...