Measures needed to support Malaysia's economy
KUALA LUMPUR: There is a need for measures to be introduced for Budget 2020 to support Malaysia's economy from the current global economic uncertainties, analysts opine in a budget preview.
According to Affin Hwang Capital, going into 2020, the global economy still faces substantial downside risks emanating from the global trade war.
“The International Monetary Fund (IMF), in its latest issue of the World Economic Outlook (WEO), downgraded its growth forecast on the world economy by 0.1 percentage point to 3.5 per cent for 2020 (3.2 per cent in 2019),” the research firm said.
“The global manufacturing Purchasing Managers' Index (PMI) remained in contraction for the fourth consecutive month at 49.5 in August from 49.3 July.
“Global semiconductor sales contracted for the seventh consecutive month in July by 15.5 per cent year on year (y-o-y), albeit at a slower pace compared to 16.8 per cent in June.
“With recent weak external data, as reflected in the global PMI, this may suggest that manufacturers will remain cautious on new orders and international trade going forward.”
Affin Hwang highlighted that according to the IMF's latest assessment of the impact of the trade war, based on a simulation, the recently announced tariffs by the US and China will lead to a 0.3 percentage point reduction in global gross domestic product (GDP) growth in 2020, where more than half of the impact will be due to lower business confidence and negative financial market sentiment.
It further highlighted that assuming that further tariffs are implemented, this may lower global growth by 0.8 percentage points in 2020, with the IMF's global GDP growth possibly falling below the three per cent level next year.
“Growth in Malaysia's private investment is highly correlated with external conditions, where slower growth is likely from some postponement and delay in the actual implementation of investment in the manufacturing and services sectors, due to the global slowdown.
“Nevertheless, we believe the country's domestic demand, especially private consumption, will sustain its growth momentum, possibly benefitting from Budget 2020 measures.”
Affin Hwang Capital also noted that the Government is likely to project the country's real GDP growth to average around 4.5 to five per cent for 2020, against its expectation of 4.5 per cent (4.7 per cent estimated for 2019).
“However, in the event that the external environment deteriorates sharply and if there is a need to introduce additional fiscal stimulus, we believe the Government will allow its fiscal deficit target to be flexible to shore up economic growth, whereby the fiscal deficit may be slightly higher than the deficit target set and revert to the fiscal consolidation path once the global economic environment stabilises.”