Analysts: Big task for new govt to steer economy
Since the formation of unity government comprise of three major coalitions, there are risks of political instability in the next five years.
MIDF Research
KUCHING: After almost a week, Malaysia finally formed a new government comprising three major coalitions, Pakatan Harapan (PH), Barisan Nasional (BN) and Gabungan Parti Sarawak (GPS).
Datuk Seri Anwar Ibrahim, 75, was sworn in as Malaysia’s 10th Prime Minister on Thursday, ending six days of political uncertainty due to the country’s first hung parliament.
Analysts say the formation of a government post-GE15 was crucial particularly in tabling a new version of National Budget 2023.
After the initial euphoria, the team at Kenanga Investment Bank Bhd (Kenanga Research) believe the market will assess the effectiveness of the unity government, which is unprecedented in Malaysia, and in uncharted waters.
“We hold the view under a ‘power sharing’ model, that the mostly like outcome is the continuation of prevailing policy inclinations at least over the immediate term including pro-business, protectionism for local industries, business-asusual for government-linked companies, strong fiscal support to the economy including cash handouts and fuel and food subsidies, and pumppriming via the rollout of public infrastructure projects,” it said.
At this juncture, researchers with MIDF Amanah Investment Bank Bhd (MIDF Research) said it is a critical time for Malaysia to ensure recovery from the global pandemic to be sustainable amid uncertainties on the external front going into 2023, with the global economy is surrounded with slowdown risk, global tightening of monetary policy, elevated commodity prices and geopolitical conflicts.
“Since the formation of unity government comprise of three major coalitions, there are risks of political instability in the next five years,” it forewarned in its own analysis.
“If BN were to exit the government in the near term, PH and Borneo Pact (GPS and GRS) can still govern but with a razorthin majority,” it commented.
We opine that major and longer-term economic policy reforms may not take place smoothly because each party and coalition in the unity government has different interest and reform agenda.
“In fact, it is unclear whether the new unity government will only include initiatives from PH manifesto or a combination of programmes from both PH and BN manifestos.”
After recording stronger than expected gross domestic product (GDP) growth in 3Q22 at 14.2 per cent year on year (y-o-y), MIDF Research now foresee Malaysia’s economy to expand by eight per cent this year.
“Even if we assume the quarterly growth to be stagnant in the final quarter (i.e. the level of activities in 4Q22 to be the same as in 3Q22), we should expect the full-year GDP growth at 7.7 per cent.
“As for next year, we forecast the economy to expand by 4.2 per cent, mainly underpinned by improving domestic demand, steady consumer spending, lower unemployment rate and stable inflationary pressure.
“On top of private sector spending, we believe the expansionary fiscal spending will also contribute positive to GDP growth next year. On another note, the moderation in 2023 GDP growth mainly reflects drag from softer external trade performance as global outlook stays cloudy.
“Furthermore, we project growth rate to be more normalised due to the absence of low-base effect.”
Kenanga Research continued to advocate investors to seek refuge in domestically-driven sectors including banks, telcos, auto makers/distributors, mid-market retailers and construction, amidst rising external headwinds.
“We believe the “unity” government will be supportive of domestic consumption.”