Affin Hwang sees fiscal deficit at 3.2-3.4 pct

Malaysia's fiscal deficit is likely to range between 3.2 to 3.4 per cent in 2020, should the government roll out a more business- and consumer-friendly, as well as expansionary budget for 2020, says Affin Hwang Investment Bank Bhd.

Head of research and chief economist Alan Tan said the budget would be able to provide a short-term boost to the country's economy and cushion the slowdown in exports amid the ongoing USChina trade spat.

“The budget may include measures that are supportive of private consumption and strategies that could drive investments.

“And one of my suggestions could be to look at a possible cut in corporate income tax,” he told a media briefing on the market outlook for the second half of 2019 here yesterday.

Measures that could improve tax competition in the region would help the country to attract more foreign direct investments, he noted.

Slated to be tabled on Oct 11, the 2020 Budget would also incorporate the 12th Malaysia Plan which would be introduced next year, he said.

While agreeing with Finance Minister Lim Guan Eng's views that the three per cent deficit would be challenging to meet next year, Tan said the 3.23.4 range could lead to rating agencies like Fitch, Moody's or S&P to maintain Malaysia's ‘stable' rating, rather than downgrading it.

“After all, 2020 would be challenging on the external front,” he said.

Earlier in his presentation today, Tan expressed concern that there is a high possibility for the International Monetary Fund (IMF) to cut the world's gross domestic product (GDP) growth to 3.1 per cent in 2020, down from the current forecast of 3.6 per cent, if the US imposes another 25 per cent tariffs on the remaining US$300 billion worth of China's imports in late Q3 to Q4 this year.

He said US-China trade tension is unlikely to resolve any time soon, which could drag IMF's GDP forecast by as much as 0.5 percentage point for 2020.

“And GDP growth falling below 3.0 per cent signifies a recession,” he added.

However, he believed Malaysia's GDP would grow 4.5 per cent this year, supported by strong fundamentals, strong private consumption and domestic demand, along with the acceleration in the government's development expenditure from the third quarter onwards.

With the ongoing trade war, Tan believed Malaysia would benefit through trade diversion, although only for the short term.

On the benchmark FTSE Bursa Malaysia FBM KLCI outlook, the research house expected it to hit 1,679 by yearend, with the ringgit to trade at 4.10 versus the greenback by end-2019 and touch 3.90- 4.00 by 2020. — Bernama

The budget may include measures that are supportive of private consumption and strategies that could drive investments. Alan Tan