The current conversation in local bourse is what is the new and constantly changing support level as market plunge on two straight days of Wall Street crash.
Trump's tariff war on Canada last night saw him ordered for 50% retaliatory tariff on Canadian steel and alumnium for Dow Jones reeled down by 450 points. A day earlier, his mention of the R word for recession sent it crashing by almost 900 points.
For Malaysia, it is already 20 weeks of market decline due to foreign investors pulling out. It is most worrisome for a market that have yet to have a bull run since 2014. The buzzword is recession and recession triggered volatility. There is none of the expected "Trump bump", but sell-off every time he speaks and its economic impact.
The conversation has shifted to beyond conversation on market crash and recession, but systematic global collapse. What is to come of Malaysia?
To understand what is happening on the economic front is today's column in The Star:
Will tariffs push the US economy into recession?
By LEE HENG GUIE
INSIGHT
Wednesday, 12 Mar 2025
The odds of the US economy entering a recession in 2025 are rising. — Reuters
MORE than a month into his second-term administration, US President Donald Trump has signed more than 80 executive orders covering a range of topics including punitive tariffs, government reforms, immigration, border security and more.
The odds of the US economy entering a recession in 2025 are rising. The trade tariffs policy uncertainties and fears of trade war escalation, sinking stock markets, fears of rising prices of goods and services, falling market confidence as well as weakening economic readings have stirred the growth scare.
The on-again, off-again tariff threats have raised considerable uncertainties, prompting businesses and investors to adopt a wait and see approach, or may consider to freeze business investment.
Tariffs retaliation is highly damaging and harmful to global economic growth as they disrupt the supply chains, hamper trade flows, increase inputs cost, and raise prices of goods. Tariff is a tax on consumers as they have to pay more.
The immediate effect of the tit-for-tat tariffs will dampen economic growth and investment as well as push up inflation.
As tariffs are implemented amid sticky inflation and slowing growth, this raises the alarm about stagflation. Stagflation is a rare economic scenario of high inflation and stagnant economic growth.
Stagflation was seen in the US economy in the 70s and 80s.
Such a stagflation effect scenario puts the US Federal Reserve (Fed) in a bind. The Fed faces a tough choice, whether to react to high inflation, which will curb growth, or to support the economy and risk de-anchoring inflation expectations.
The US economy ended the year 2024 on a strong note, printing real gross domestic product (GDP) growth of 2.8% compared with 2.5% in 2023.
However, on a quarterly trend, fourth quarter (4Q) GDP growth has slowed to 2.3% from 3.1% in 3Q24.
Decomposing the growth contribution is not that encouraging.
Household consumption remained resilient (4.2%) while government investment slowed to 2.9% in 4Q from 5.1% in 3Q.
Gross private domestic investment contracted by 5.7% in 4Q for the first time after staying in positive trajectory for six consecutive quarters. Residential investment spending turned positive. Exports are also down moderately.
If the core engines of the economy (consumer spending 68.1% of total GDP) and total private and government investment at 35% of total GDP pulled back sharply, the chances of a technical recession or a meaningful growth slowdown hitting the US economy would rise.
The Fed has done an excellent job to tame inflation without fracturing the US economy.
While the inflation was brought down to 3% in January, it remains above the Fed’s target of 2%, the unemployment rate ticked higher to 4.1% in February.
Is the US economy still on track for a soft landing? Will the US economy be foolproof as during the Trump’s first-term presidency? Back in 2017-2020, the US economy was cruising along not until shattered by the Covid-19 pandemic.
This time around, we see a different dynamic at play under the Trump 2.0. The trade conflicts are wider, covering unilateral tariffs and reciprocal tariffs.
Public debt (US$33.5 trillion or 123% GDP at end-2024) and budget deficit (US$1.83 trillion or 64% of GDP) at all-time high, and the US stock market is overvalued.
Although the Fed has cut interest rates, the monetary policy easing ahead will be a cautious one, as it guards against the upside risks to inflation coming from the tariffs policy.
How will the Trump’s Making America Great Again impact the US economy? Briefly, Trump’s demand-stimulating policies such as deregulation, corporate and personal income taxes cut would raise output.
Highly disruptive
However, the supply constraints such as the highly disruptive tariffs policy will curb demand and boost inflation, and the immigration deportation will tighten the labour market, disrupt supply, push up wages and cause inflation.
Additionally, the Department of Government Efficiency jobs cut and budget spending cut will have contractionary impact on the economy although it helps to reduce budget deficit over time.
We have to recognise that some Trump policies will likely act as countervailing forces to other policies.
The net result of all these demand and supply measures could increase inflationary pressures, forcing the Fed to remain patient about interest-rate reductions, citing uncertainty around the potential impact of the economic policies.
The combination of economic releases and expectations on the growth outlook comes with surveys of consumers and businesses showing decreasing consumer confidence, worries about rising inflation as well as pointing to heightened uncertainty about the economic outlook.
A mixed set of economic readings point to a deceleration in economic growth in the months ahead.
Lack of clarity
The lack of clarity regarding the tariffs is taking its toll. Trump’s tariff policy has created a spike in uncertainty among businesses and investors. The longer it goes on, the greater the uncertainty. Uncertainty is a source of demand restraint.
> The Fed’s own beige book, a collection of anecdotes from hundreds of businesses, mentioned uncertainty 47 times in its latest release, up from just 17 times in January.
> The Atlanta Fed’s GDPNow tracker of incoming data is indicating that US GDP will contract by 2.8% in the first quarter, marking a significant revision from previous estimate of 1.5% contraction.
While the tracker is volatile through the quarter, it does coincide with some other indicators showing a growth slowdown.
Many economists have recorded their estimates for the economy’s growth to as low as 1% at an annual rate in 1Q25, down from 2.3% in 4Q24.
> While the February jobs report painted a picture of stable labour market, it showed some underlying signs of weakness. The jobless rate ticked up to 4.1%, the labour force participation rate dipped, average workweek hours dropped.
The U-6 is broadest measure of unemployment, which includes those who are only marginally attached to the workforce and the underemployed – people who are working part time for economic reasons has ticked higher to 8%, its highest level since October 2021.
> The ADP payroll giant showed that private-sector employment increased by an estimated 77,000 jobs in February, a dramatic drop-off from the strong job growth of 186,000 in January.
> The Conference Board’s Consumer Confidence Index slipped to 98.3 for the month, down nearly 7% and below market expectations. It was the largest monthly drop since August 2021.
Consumers grew more pessimistic about the economic outlook in February as worries brewed about a slowing economy and rising inflation.
The Expectations Index tumbled for the first time since June 2024, and the measure has fallen below the level consistent with recession.
> Retail sales declined 0.9% in January (up 0.7% in December 2024) as stubborn inflation continued to bite and harsh weather curbed economic activity. Personal spending fell 0.2% in January.
> The bond market also has been pricing in slower growth. The three-month Treasury yield moved above the 10-year note, a historically reliable indicator of a recession at the 12 to 18-month horizon.
> The fall in the ISM manufacturing index in February (50.9 versus 50.3 in January) could mark the beginning of the end of the recent mini renaissance, as the reality of the disruption to the sector caused by tariffs starts to set in.
The prices paid index surged to its highest level since June 2022.
> On a positive side, economic activity in the services sector expanded for the eighth consecutive month in February (ISM index at 53.5 versus January’s 52.8).
Lee Heng Guie is the executive director of the Socio-Economic Research Centre. The views expressed here are the writer’s own.
Systemic collapse
There are supportive views of Trump's actions as necessary though painful within the American financial community. For the time being, the market could only endure and hope he is in control and knows what exactly he is dong beyond the Art of Deal.
In mid-February, Guardian's George Monbiot expected Trump will trigger a recession and wrote of ways to survive through it. He had ventured into the possibility of systemic collapse in the US. It will reverberate through out the world as is currently happening.
An extract of his article:
Complex systems (such as economies and human societies) have characteristics that make them either resilient or fragile. A system that loses its diversity, redundancy, modularity (the degree of compartmentalisation), its “circuit breakers” (such as government regulations) and backup strategies (alternative means of achieving a goal) is less resilient than one which retains these features. So is a system whose processes become synchronised.
In a fragile system, shocks can amplify more rapidly and become more transmissible: a disruption in one place proliferates into disaster everywhere. This, as Andy Haldane, former chief economist at the Bank of England, has deftly explained, is what happened to the financial system in 2008.
A consistent feature of globalised capitalism is an unintentional assault on systemic resilience. As corporations pursue similar profit-making strategies, and financialisation and digitisation permeate every enterprise, the economic system loses its diversity and starts to synchronise. As they consolidate, and the biggest conglomerates become hubs to which many other enterprises are connected (think of Amazon or the food and farming giant Cargill), major failures could cascade at astonishing speed.
As every enterprise seeks efficiencies, the system loses its redundancy. As trading rules and physical infrastructure are standardised (think of those identical container terminals, shipping and trucking networks), the system loses both modularity and backup strategies. When a system has lost its resilience, a small external shock can trigger cascading collapse.
Paradoxically, with his trade wars and assault on global standards, Trump could help to desynchronise the system and reintroduce some modularity. But, as he simultaneously rips down circuit breakers, undermines preparedness and treats Earth systems as an enemy to be crushed, the net effect is likely to make human systems more prone to collapse.
At least in the short term, the far right tends to benefit from chaos and disruption: this is another of the feedback loops that can turn a crisis into a catastrophe. Trump presents himself as the hero who will save the nation from the ruptures he has caused, while deflecting the blame on to scapegoats.
Alternatively, if collapse appears imminent, Trump and his team might not wish to respond.
Government or individuals should hope for the best and prepare for the worst. The rich and powerful will do anything to hold on to their wealth and power, but the rest will have to fend for themselves.
Inevitably, the system need to undergo scrutiny. The sense of grandeur from empire building and amassing without consideration for humanity is not sustainable. Cost of military adventure is colossal financially and to human life. Neither do unabated pursuit for wealth by the few billionaires without concern for oppression and corruption that victimise the masses.
This time around lets hope for the surviving system to emerge victoriously in this war - military or trade, is those with the concern for the people. The shining example is there for Malaysia to emulate if it is not too late.
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