Malaysia ‘facing a melt-up’

Perdana Leadership

Kazi Mahmood, FMT

In case you are wondering, Malaysia is now in the middle of a “melt-up”, a recognised global phenomenon with the familiar symptoms of rising cost of living and a return of inflationary factors.

The news gets worse because, according to policy expert Prof Phlippa Malmgren, there is no way around it.

“A melt-up is when the stock market goes up, the price of hard assets like property goes up and also the price of commodities like food goes up,” Malmgren said.

Malmgren, who is in Kuala Lumpur as a speaker at the Perdana Leadership Foundation’s roundtable on how Malaysia will survive the next financial crisis, said these are signs of a return of inflation to the world economy.

She said Malaysia is feeling the after-effects of measures taken in the industrialised world to stem deflation.

“Most people are preoccupied by the risk of deflation and all the central banks in the industrialised world are definitely preoccupied by such a risk,” she said.

“In order to fend-off deflation, the West are doing their very best to create inflation and I think they are succeeding but it shows up in the emerging markets first. Malaysia being part of the emerging market is facing the same situation.”

Such a melt-up, which is the opposite of a melt-down, requires sound management of the economy since this situation is a crisis of its own, Malmgren said in an interview with The Malaysian Reserve (TMR) yesterday in Kuala Lumpur.

However, she said Malaysia’s scenario was a little different from other countries since the Malaysian economy showed resilience, which was due to the fact that it is a producer of high-end products in demand in the industrialised world.

“The rise in the prices of certain goods, with high demand in the industrialised world, has aided Malaysia to fend off the risks of high inflationary pressures, for now,” she said.

Malmgren said Malaysia’s immediate future depends on its ability to compete at higher level, on a global scale.

She said in a more and more intricate global economy, which will put Malaysia to test when it faces the need to confront countries like the US, India and even Mexico, the country will have to innovate.