IntroductionEconomic slowdown is a situation where the GDP growth mainly slows down but does not decline. Indeed, such situations have been noticed in different countries that have continued to experience economic crises. One of the main characteristic of economic slowdown is the increase of unemployment and decrease of productivity. In the early 1980s and late 1990s, developing countries found themselves in a deep financial crisis (Farland & Rais 2003, UNCTAD 2001). The first generation of this crisis was the inability to pay external debt as a result of various combination factors such as increase in the cost for oil, depression in the prices of commodity export, inappropriate use of loans and increase in the foreign loans (Masih 2005). Several East Asian countries including Malaysia began to experience deeper financial problems by 1997 (World Bank 1998, Khor 1998).
This is attributed to improper design and implementation of the capital account liberalization and financial deregulation as they had obtained inflows of capital including portfolio capital and bank loans that were in foreign currencies denomination. As compared to other East Asian countries, Malaysia situation on debt was somehow manageable; however, the situation was still fragile (Barir 2002).
It is important to note that Malaysia has indeed recorded approximately 29 cycles of contractions and expansion since early 1980s (Mahani 2000; Khor 2001)). Most of the negative contractions were mainly recorded in the 1985, 1997 and 2008. In theses years (1985 and 1997) the country is said to have been hit by financial crisis and recession (Mahathir 2003). It was one of the countries that were badly hit within the East Asia region. However, the country remained resilient (Malaysia Government, 2001; Masih 2005).
The Global Financial Year (2008)The 2008 financial crisis that Malaysia experienced was totally different from the one highlighted above. The 1998 financial crisis began in Thailand and Malaysia is seen to have suffered a contraction in GDP growth. The 2008 crisis, by comparison began in the United States as a result of it weakness in the financial industry that escalated to become a harsh international financial crisis and slump in the global recession and global trade by the end of 2008. Indeed, the world’s primary economies, to be specific Japan, the European countries and the US experienced the most severe economic reduction since the 1930s Great Depression (Nambiar 2012).
Given that Malaysia is a small country and that its economy mainly relies on export, it was not spared from the external shock experience in the world. Indeed, this negative shock was transferred to Malaysia economy during fourth quarter, 2008. Industrial and export output while the investment decreased. In addition, consumer response was greatly affected. This resulted to the drop of GDP growth in this period.
The GDP growth was lower at 0.1 per cent which was disturbing when compared to the mean of 5.9 per cent in the beginning of the year. However, it was noted that the banks in the country had less insignificant exposure to the securities linked to the United States loans; therefore, they were in better shape as compared to the financial crisis that was experienced in the 1990s. However, most economists argued that as much as the 2008 global financial has less impact as compared to the 1998 one, the country was still prone to economy slowdown as the 2008 financial crisis was to be a longer one.