I'm not working with Bank Negara but when "smart" people (who is also not employed with Bank Negara as well) started to question Malaysia's targeted GDP of 6%, they are overlooking inflation, money flooding in without control, rising consumer demand and escalating commodity costs.
Before questioning the credibility of Bank Negara Governor, Tan Sri Zeti, I would like to point some things out for the sake of discussion.
We should consider inflation based on CPI (*energy, food etc) - which is the inflation's benchmark to determine our financial market.
(*I'm looking into the volatility of these prices translated from what I see on the field myself - people at ALL levels especially the medium income and the poor ones rather than sitting comfortably in an air-con office suite and thinking how to get publicity by criticizing Bank Negara)
GDP represents total aggregate output of our economy. As a market watcher, I told the investors that "WE MUST PLAY SAFE" - do not be too ambitious - so 6% is FINE by the standard of investors as the figures have been adjusted for inflation.
Let's say Gross GDP calculated 6% higher than last year, inflation measured 2% over the same period, thus : net growth over the period is reported as 4%.
Investors will look into GDP's annual growth - the primary stock performance driver - in order to determine whether 'to invest or not to invest'. Yes, it's true that if there in no change or a decline in the overall economic output, investors will translate these datum into companies inablity to make profit
So how about TOO MUCH GDP Growth? (or not 'trying to play safe' - take some risk) Definitely inflation will increase - killing the gains in the stock market hence our RM is also devaluated. So here we can see what will happen - more and more crime might happen, prices of food my go 'sky high' and unaffordable, more unemployment, more controlled of financing/loan/grants etc.
Furthermore it sounds good to increase GDP by linking to lowering unemployment rate but it will be out of control when supply decrease faster while services and goods' aggregate demand increase, constraint in the labour market that will result in company raising salary - where will this all end? Consumers definitely - in the form of price going higher. (Yes, in some way, some people are making profits out of these - maybe that's the reason they are restless seeing 6% GDP)
We should learn from what is happening around the world especially from the US. Almost all the US economists will agree with me that GDP growth causes inflation and inflation begets hyperinflation. The process can become a self-reinforcing feedback loop. Everyone in the world will start spending money which they know will be less valuable in due course. So...more increase in GDP = more price increase! Inflation are non-linear - 10% inflation is much more that twice as harmful as 5% inflation.
With that I rest my case.
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