By LIM SUE GOAN
Translated by SOONG PHUI JEE
Sin Chew Daily

Bank Negara recently said in a press release that Malaysia's gross domestic product (GDP) grew by 5.2% in the fourth quarter of 2011 and for the full-year, the GDP expanded beyond market expectations by 5.1% with growth underpinned by domestic demand.

However, the Europe debt crisis is very likely to deteriorate this year and the general election would affect the economy, possibly forming a different scenario.

Bank Negara believes that due to the decrease in foreign trade, the 2012 economic performance depends on domestic demand, particularly private sector.

Domestic demand is mainly supported by three pillars, namely personal, family and business spending. As the next general election is expected to be approaching, the government has been distributing money since the end of last year, increasing the public spending from 21.7% to 23.6% in the fourth quarter of 2011.

The government spending this year will be expanded. In addition to introducing more people-friendly policies, it will also allocate RM1.49 billion to develop Kuala Lumpur. Besides, the pay for 1.4 million civil servants will also be increased. It is estimated that the expenditure will keep increasing by billions per year.

Putting money into the market can indeed keep the economy active. But the government has to restrain its spending after the general election, which is expected to be held in June. Therefore, public spending would slow down in the second half of the year.

According to the government's Economic Report, the total federal government debt increased from RM407.1 billion in 2010 to RM455.7 billion in 2011. However, the DAP claimed that the amount did not take into consideration additional RM96.9 billion of "contingent liabilities", and the expanded figure would then constitute 65.2% of the GDP.

Regardless whether the accusation is true, the federal government debt is on the rising trend. In addition to the enormous civil service welfare spending, the government also plans to spend RM172 billion on the Greater Kuala Lumpur/Klang Valley initiative, including RM50 billion for the My Rapid Transit (MRT) project, RM26 billion for the Kuala Lumpur International Financial District (KLIFD) and RM5 billion for the 100-storey Menara Warisan Merdeka. It is gradually not feasible to stimulate the economy with spending.

Meanwhile, business spending is supported by service and manufacturing sectors. It is estimated that exports to Europe and the United States would decrease by 15%. If Greece were to default and affect European banks and the world economy, the private sector expenditures would then be not optimistic.

Some businesses said that since the date of the next general election remains uncertain, many large-scale business plans and projects have been temporarily shelved. They are also worried that the economy will turn worse after the election.

If private sector is afraid to invest, the economy will then lose the engine to move forward.

Meanwhile, the total household debt has reached RM581 billion as at end-2010, accounting for 76% of the GDP, and ranked the second highest in Asia. Many families spend nearly half of their income on repaying debts.

Bank Negara has instructed banks to implement the Guidelines on Responsible Finance to prevent household debt from collapsing banks. A few banks have also raised credit card interest rates and late repayment penalty since 1 March 2012.

How are consumers going to consume when it becomes more and more difficult to obtain bank loans? Inflation also affects spending. And last year, inflation has reached 3.2%, showing that prices remain high in the country.

If something happens to the three main pillars of domestic demand, many housing projects might be affected and the burst of the real estate bubble would mean a hard landing for economy.

Therefore, the national economy this year is full of variables, which are affected by the general election.