Analysts: Little boost from new stimulus measures

PETALING JAYA: The new stimulus measures announced by Prime Minister Tan Sri Muhyiddin Yassin may have limited impact in supporting the domestic economy via development expenditure, as this reflects some concerns on possible deterioration in the country’s fiscal deficit position.

In a note by Affin Hwang Capital Research, low crude oil prices have affected petroleum income tax and corporate income tax in 2020.

It also said the statement made by the prime minister in the Economic Action Council meeting indicates the government’s firm commitment towards fiscal consolidation.

“When the previous government unveiled the RM20 billion economic stimulus package in late February 2020, the country’s fiscal deficit target was raised to 3.4% of GDP in 2020, slightly higher than the initial target of 3.2%, but the additional allocation by the government amounted to only RM3.5 billion.

“If the Budget 2020 is recalibrated, we believe the country’s budget deficit target is likely to be revised only slightly higher from the current official target of 3.4% of GDP in 2020, as sovereign rating agencies will continue to monitor Malaysia’s macroeconomic fundamentals and developments,” it said.

CGS CIMB Research also said the additional measures are unlikely to prevent a sharp front-loaded slowdown in growth in 1H20.

“The imposition of the movement control order could result in a contraction in economic activity in March.

“We expect Bank Negara Malaysia to continue easing monetary policy to cushion the downward slide in economic momentum, projecting further 2550 basis point cuts to the OPR in May or perhaps earlier,” it said in a note.

On Monday, Muhyiddin announced additional measures to the existing economic stimulus package, which included an allocation of RM500 million to provide a 2% discount in monthly electricity bills given to industrial, commercial, agriculture and domestic users and small projects focusing on rural infrastructure worth RM2 billion previously announced will begin implementation from April 2020.

In addition to these, a movement control order was also implemented with effect from today (March 18) in which all government and private premises would be closed, except for those providing essential services.

Affin Hwang said the measures announced, especially the restriction in travelling into Malaysia for foreign tourists will have some impact on the domestic economy in the near term.

“The country’s tourism sector is estimated to have been impacted the most by a loss of RM3.37 billion in the first two months of 2020.

“We believe with the restriction on movement control in place, this may add to the losses for the tourism-related sectors in terms of lower tourist arrivals and tourist receipts,” it said.

It expects real GDP growth to slow and average around 3.3%, but this could be revised for a possible further downgrade.

CGS CIMB opined that the sectors least affected by the order could be telcos, utilities, transport, plantations, gloves, technology, construction, and F&B players, like Nestle (Malaysia) Bhd and Fraser & Neave Holdings Bhd.

Meanwhile, HLIB Research said it is downgrading its GDP forecast to 2.3% from 4.1% predicated on the assumption that growth will be negatively affected in 1H20 and will recover in 2H20 as the spread of Covid-19 gets contained.

In addition, it is also reducing its 2020 KLCI earnings growth to -1.7% from 3.8%.