In 2008, the US and Europe experienced another severe recession, again following turbulence in the US financial markets, with ‘contagious’ effects felt throughout world financial markets. The effects of this crisis on the real economy led to the Great Recession - a downturn in economic activity that again affected the world economy.
But the world-wide impact of the Great Recession was far less severe than that of the Great Depression. According to Barry Eichengreen (2015), the ‘more recent crisis was better managed than the earlier one, which resulted in widespread social distress and, in the worst case, the rise of fascism.’ Worldwide GDP fell by less than 1 per cent from 2008 to 2009, markedly less severe than the 15 per cent fall following the Great Depression.
In the 21st Century, Malaysia’s international trade has a far wider base - both in the nature of its exports and in the range of countries with which it trades. Its exports are now more diversified - electrical and electronic products, palm oil, liquefied natural gas, petroleum, chemicals, and manufactures of metal, rubber, wood and wood products.
The direction of Malaysia’s trade has also widened. The US now only accounts for around 10 per cent of Malaysia’s exports, with Singapore, China and Japan also offering attractive markets for Malaysia’s exports. The more Asian-based nature of Malaysia’s trade meant that it acutely felt the effects of the Asian Financial Crisis of July 1997 - its real GDP per capita fell by 10 per cent in 1998. But the recession was short-lived and, through sound economic management, growth resumed in 1999.
Because of the very different patterns of its trade - both in its direction and product mix - the effects of the Great Recession on Malaysia were very different from those of the Great Depression (Figure 1b).
In 2008 and 2009 US real GDP per capita declined by 1.2 per cent and 3.6 per cent respectively (Table 1), and although growth was positive in the years that followed, it was sluggish. Indeed real GDP per head only passed its 2007 level in 2014, six years after the crisis hit.
Malaysia certainly felt the effects of the Great Recession, its real GDP per capita falling by over 3 per cent in 2009 (Figure 1b). But the recession was short and sharp, and in 2010 real GDP per capita grew by 5.8 per cent. In the 21st century, Malaysian growth is far less anchored to events in the US and Europe.
Malaya’s dependence on a few primary products and the narrow geographical focus of its international trade made it extremely vulnerable to crises in the economies of its trading partners, a vulnerability that still afflicts many developing countries with an equally narrow range of primary-product exports.
With more diversified exports and a very much wider range of trading partners, Malaysia in the 21st century is better able to cope with dramatic events in the US and European economies.
