Misguided economic expectations

PUBLIC commentators and media reports are, generally, doing little to boost confidence in the economy.

You have economists who claim the economy is doing well when the growth rate falls; then they say that the economy is doing well when it rises too. Regardless of circumstances their verdict is always positive.

Mainstream media, for the most part, attempts to misreport or rather selectively report on the state of the economy.

As far as the reader is concerned, the truth not told is a lie told.

Those who read the newspapers can be expected to know how to verify reports.

Readers end up looking to blogs and alternative news websites. This erodes public confidence in the economy, even when the economy is improving. Or even when honest attempts are made to repair the economy.

One could, therefore, foresee expectations to be slow in responding to policy measures.

Communications experts have no idea how expectations matter to the economy. All they are concerned about is declaring that they are mending negative perceptions. And in the process adding more to the damage, or slowing down the pace of recovery.

Sadly, there will be a shift from rational to distorted expectations, a phenomenon that will arise because consumers and producers are reluctant to believe that correct policy measures have been taken, even when they are correct and have been taken.

Expectations will then be slow to respond; there will be a longer "wait-and-see" attitude than necessary because cynicism or disbelief gets structured into the expectation formation process of consumers and producers.

Simply, what this means is the following. People do not think the right measures are being taken or responding in a timely manner because the government is not seen as acknowledging the problems at hand. Therefore, there will be a reluctance to believe that things are improving or can improve.

The breakdown in trust will not support the government's best efforts to improve the economy. This can be problematic.

Let us take a few examples to illustrate the point being made.

When Fitch published their ratings report, they upheld Malaysia's A- rating.

They acknowledged that Malaysia had done well to adjust to the decline in oil prices and volatile capital flows.

They were also positive on GDP growth and the current account balance.

A fair acknowledgement of the state of affairs would be to report that Fitch raised concern on governance issues, the high household and government debt, and the size of contingent liabilities.

Some of the leading newspapers tried to whitewash the negative aspects of the economy.

This gives little credit to the government or its ability to maturely handle problems.

With due credit to the government, it has recognised some of the problems and it has tried to overcome them.

The main one being the drop in oil prices and the resultant effects on government revenue, which the government has tried to manage.

A student can use "liquid paper" to cover the mistakes they make. That is where the parallel breaks because those are errors in their thinking process, which they are not required to exhibit; they are not attempts to erase facts.

However, economic commentators and journalists naively fail to objectively assess the strengths and weakness of the economy.

Instead, they inadvertently convey the impression that the government is in a state of denial, though that is definitely not the case on all issues.

Consider another example that may be equally useful. Nielsen's consumer confidence report was released on Aug 23. They have calculated a score of 94 percentage points (pp) for Malaysia, which is an unsatisfactory score as it is below the threshold of 100 pp. This is undeniable.

It is also irrefutable that, as compared with some of its Asean neighbours, Malaysia has not performed well on the consumer confidence index. Malaysia's consumer confidence index is below that of the Philippines (130), Indonesia (121), Vietnam (117) and Thailand (107).

The redeeming feature to Malaysia's current score is the fact that its level is an improvement over the score of 87 pp in the second quarter of 2016.

Nielsen's study fits one's intuitive sense of what would happen in the face of low consumer confidence. When consumer confidence is weak, people will be concerned with the state of the economy; people will want to save more; there will be fears of job security; and concerns regarding rising prices. Those are precisely areas where Nielsen found consumers in Malaysia were worried about.

There is no shame in accepting that consumer confidence is on its way up. Neither is it a sign of weakness if it is still below the benchmark level of 100.

Following the trials we faced with the drop in growth rate and the exchange rate debacle, it is only to be expected that the economy took a slide. It would take a while for consumer confidence to surge back.

If the government's communications and public relations consultants are behind this attempt to mislead the public, one can only say that the most mediocre and naïve consultants have been given the job.

A false and simple-minded sense of loyalty does not help promote the credibility of economic policy measures.

It is time journalists and commentators learnt how to report and assess intelligently and maturely. To do otherwise would be to hurt the visible hand that guides the economy.

Dr Shankaran Nambiar is author of Malaysia in Troubled Times. The views expressed in this article are his own. Comments: letters@thesundaily.com