How did the financial crisis 2008 effect the Malaysian Economy?
How did the financial crisis in 2008 start?
How did the financial crisis 2008 effect the Malaysian Economy? The financial crisis 2008 negatively affected on the Malaysian Economy via the financial and commercial channels.
Financial Crisis in 2008 which is a severe incident that happened in the United States. Financial Crisis in 2008 is called a subprime mortgage crisis also (Duignan, 2019). It affected all elements of the financial system in the countries. It has happened in the Housing Market in the United States and it was the main cause for this crisis.
In 2001, the Federal Reserve which is the Central Bank of the United States anticipated a mild recession and reduced interest rates for that. After that, Banks were able to lend to customers at a lower interest rate and demand for credit was increased. Then customers are motivated to purchase durable goods which are houses, appliances, and automobiles. It was most affected by the Housing Scheme and home prices increase as a result of that. This is the Housing Bubble in the United States in 2008 and it was the reason for having the financial crisis in 2008.
Financial crisis 2008 effects on Asian countries
The crisis caused to the loss of investor confidence, affecting stock markets worldwide. The issue has spread to other countries, slowing the world’s economies. This has affected many Asian countries and Japan had considerable effects by this crisis in 2008. Japan’s gross domestic product had decreased by a considerable amount. But China and India had not a severe effect like Japan.
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Financial crisis 2008 impact on the Malaysian Economy
In the fourth quarter of 2008, GDP growth fell by 0.1 percent, reaching 1.51 in a unique position in 2009. The agricultural sector fell to -4.3 in 2009 in Malaysia and it highly affected to the manufacturing sector. It started from the second quarter of 2008 and it reached -17.6 by the first quarter of 2009. In the first quarter of 2009, Malaysian exports to Japan began and ran for six months. Malaysian exports to most ASEAN countries have fallen in rate and quantity (Bakhtyar, 2017).
Malaysia has not spared the external shock because it is a tiny open and export-dependent economy. In the fourth quarter of 2008, the negative impact conveyed to the Malaysian economy. Malaysia was significantly affected by the global financial crisis via the financial and commercial channels (Ali and Hatta, 2013). Malaysia has not seen major downturns over in 2008 a deeper recession may have been created than in 1998. The first half of 2008 had not had considerable effects from the crisis and the second half of 2008 to the first quarter of 2009 had some effects from it. A 27.9% YOY drop in export value in January 2009 was the primary cause of the dip. Imports plummeted by 19 percent in the first quarter of 2009 as a result of the significant decrease in exports.
How did the financial crisis 2008 affect the Malaysian capital market?
In the second quarter of 2008, this crisis affected the capital market in Malaysia. Banks and financial institutions of the United States and West countries reduced their attention about international trade and they focused housing market. Since the Asian financial crisis, Malaysia’s capital markets have expanded significantly.
There is currently 86% of GDP worth of ringgit bonds outstanding on the third-largest bond market in Asia. Net financial and capital flows in Malaysia have fallen from RM-37.7 billion in 2007 to RM-118.5 billion in 2008. In all other affected countries from financial crisis in 2008, Malaysia heavily showed portfolio investment outflows. Changes in net portfolio equity flow and stock prices in Malaysia have a strong link. There has been a 98 percent drop in foreign direct investments in Malaysia since the second quarter of 2008. Compared to the previous year, foreign direct investment fell by 17 percent. 2008 saw a RM 50.2 billion rise in direct investment by Malaysian corporations (Ali and Hatta, 2013).
How did the financial crisis 2008 effect the Malaysian Ringgit?
A major impact of capital flows on the Malaysian Ringgit has felt since it was de-pegged from the US Dollar in 2005. Since the beginning of 2009, the Malaysian Ringgit has lost almost 6 percent of its value versus the US Dollar from RM 3.464 to RM 3.693 at this time. Depreciation of the Malaysian Ringgit against the US Dollar caused to reduce exports and portfolio capital outflows. Further, it caused to increase export performance and decrease bad effects from having a global recession.
How did the financial crisis 2008 affect the Malaysian banking sector?
The banking sector in Malaysia did not show the worst situation from the financial crisis 2008 effect. The banking sector has maintained risk-weighted capital ratio. Core capital ratio as 13.1% and 10.6% respectively and these ratios are highest than other country ratios. Since 2008, the non-performing loan ratio has dropped to 2.6 percent from 18.5 percent in 2008, when the Asian financial crisis peaked (Ali and Hatta, 2013).
In general, the Malaysian banking sector entered the present global financial and economic crisis from a far stronger position than it did during the Asian financial crisis. It combined with improvements in governance structures, risk management frameworks, infrastructure and practices, and capacity building undertaken as part of the banking sector reforms. On top of all that, the banking sector in Malaysia is part of an established financial system with a sophisticated capital market.
How did the financial crisis 2008 affect the Malaysian exports sector?
This financial crisis 2008 effect manufacturing exports in Malaysia. In particular, electronics, electrical machinery, and appliances, which together account for 40 percent of Malaysia’s exports, have seen a significant reduction in value. Total manufactured exports have reduced by 20% in last quarter of 2008 and it continued to quarter to quarter. Further, palm oil exports and crude oil exports had declined by 32% and 33% respectively in the same period (Ali and Hatta, 2013). The real economy is feeling the effects of the financial and trade crisis in terms of output, trade, and jobs lost. As a result of a decline in subsectors such as electrical and electrical products, petroleum, chemical products, rubber, and plastic products the manufacturing output shrank (Ali and Hatta, 2013).
How did the financial crisis 2008 affect the Malaysian people?
This financial crisis has affected for the social side of Malaysia also. Firstly, these effects focused on the income of the country. Since decreasing demand for goods and services had a reason for reduction income levels and then it affected to increasing unemployment and reducing investments. People had to face some negative issues like job losses, depreciation of assets value, inflation, lowering remittances and etc. Further, the government had to cut spending for education, health, and food also. As a result, the country faced a poverty situation. These causes badly affected to the country’s survival in the world (Ali and Hatta, 2013).
This means that food expenses are greater for many people in Malaysia, especially the urban poor and those in rural regions who are net food purchasers. There is a real possibility that some families will fall back below the poverty line due to their lower purchasing power, while those who are already there will require significant additional assistance due to their low purchasing power (Ali and Hatta, 2013).
The economic base of a country and its growth rates has a significant impact on national employment and unemployment rates. However, compared to other countries, the impact of the crisis on Malaysia’s jobless rate isn’t quite as frightening. During the crisis, the unemployment rate was reasonably consistent and low. Only a 0.9% increase in unemployment was recorded in the first quarter of 2009 from the fourth quarter of 2008, when the unemployment rate was 3.1%. However, in the second quarter of 2009, it dropped to 3.6, reflecting the economic slowdown and the government’s two stimulus measures.
After the Asian Financial Crisis (AFC) in 1997 and the Great Financial Crisis (GFC) in 2008, Malaysia was one of the countries affected. This led to the Malaysian economy crashing, and the GDP plummeting to $7.36 in 1998 as a result of the crisis. It was less severe than the first crisis. But it nonetheless resulted in the country’s GDP dropping to 1.51 in 2009. Reduced production in these countries led to a fall in energy demand, which resulted in a drop in prices around the world (Bakhtyar, 2017).
When considering about impacts of America, They had a very difficult time getting back to normal. For years, individuals in poverty and those who had suffered the most the millions of families who lost their homes, companies, or savings; the millions of employees who lost their jobs and faced long-term unemployment and the millions of people who had fallen into poverty continued to suffer. This was in stark contrast to the bankers who had played a role in the crisis. But, Malaysia could be stable regarding the economy than the United States while controlling negative effects from the financial crisis in 2008 also. However, Malaysia had to face impacts from the financial system, macro-economy variables, and society to sustain the world.
Reference list
Ali, I. and Hatta, Z.A. (2013). 2008 Economics Crisis in Malaysia: Implications on the Economy, Society and Safety Nets. International Journal of Business and Technopreneurship, 3(2), pp.261–276.
Bakhtyar, B. (2017). Asian and Global Financial Crises’ Effect on Malaysia Co2 Emission. Global Business Review, 18(5), pp.236–242.
Duignan, B. (2019). financial crisis of 2007–08 | Definition, Causes, Effects, & Facts. In: Encyclopædia Britannica. [online] Available at: https://www.britannica.com/event/financial-crisis-of-2007-2008.
