GDP likely to decrease on spending cuts

KUALA LUMPUR: The government’s decision to cut down on spending would affect gross domestic product ( GDP) in the short term, but in the longer run the country would gain stability and economic resilience, says an economist.

Allianz chief economist Michael Heise said the high spending in previous years needs to be corrected in order to have a balanced budget.

“The economy will suffer from correction in the short to medium term, but it is needed for stability and credibility in the long run,” he said at a press conference on the company’s Global Wealth Report– Malaysia yesterday.

He said external factors such as the US- China trade war would still be the main determinant of the country’s economic performance in the future.

“As the trade war continues, Malaysia needs to be prepared to expand its trading network as the negative impact of the trade spat would indirectly impact the suppliers for China and the US,” he said.

He added that even though some major US companies might relocate to other countries including Malaysia, the benefit would be outweighed by the contraction in demand from the two huge economies.

Heise also predicted that the US Federal Reserve would not increase its interest rates too aggressively next year as they have already reached a high level this year.

“This would slow down the capital fund outf low from emerging markets including

The economy will suffer from correction in the short to medium term, but it is needed for stability and credibility in the long run. Michael Heise, Allianz Chief Economist

Malaysia, thus giving time for correction in the coming years,” he said.

However, taking into account the surrounding factors that inf luence Malaysia’s economy, Heise said the upswing in oil and commodities prices would not be sufficient to buffer the impact of rising interest rates and the escalating trade war.

“This is because oil prices fluctuate and are influenced by issues in oil-producing countries,” he said.

The Wealth Report places Malaysia 35th in the list of richest countries based on financial assets per capita for 2017, up one place compared to 2016.

“Financial assets growth of private households was at 8.6 per cent in 2017 compared to 6 per cent from 2013 to 2016.

“The growth drivers were insurance and pension assets with a plus of 10.6 per cent, making them the most important asset class and reflecting the strength of occupational pension schemes,” it said.

The household debt to GDP ratio meanwhile was at 84.4 per cent in 2017 compared to 89 per cent in 2015, due to the restraint on borrowings in private households. — Bernama