KUALA LUMPUR: While external headwinds and uncertainties remain, Alliance DBS research sees Malaysia’s 2020 growth to be supported by domestic demand – private expenditure, and the manufacturing and services sectors.
The research house, via its note on Jan 6, said it expects a 4.5% gross domestic product (GDP) growth this year, down slightly from the 4.6% estimated for 2019.
“On the fiscal side, we believe that the government’s fiscal reforms in Budget 2020, especially the planned targeted fuel subsidy and short-term boost from the revival of mega projects such as the East Coast Rail Link, land reclamation works for the Penang Transport Master Plan and Pan Borneo Highway, could help generate economic activity and strengthen Malaysia’s private consumption and investment.
“We also expect the government to remain on target in reducing the country’s fiscal deficit to 3.2% of GDP in 2020 (2019E: 3.4%; 2018E: 3.7%), in view of its commitment to fiscal consolidation in recent quarters,” it said.
Nevertheless, the research house expects the country’s economic growth to continue being driven by private sector activities in 2020, especially private consumption spending.
This is supported by the government’s proposed initiatives and projects announced in Budget 2020, coupled with Bank Negara Malaysia’s monetary easing policies that could provide a sustainable boost to the economy.
Alliance DBS also foresees the government’s commitment through initiatives such as Basic Necessities 100 (BA 100) as curbing rising cost of living to improve household purchasing power.
The BA 100 programme enables consumers to purchase basic necessities (flour, sugar, cooking oil and rice) at prices 10 to 20% lower than market prices.
“Overall, we revise our forecast for full-year 2020 headline inflation to expand at 2.0% yoy, the lower end of our previous forecast of 2.0-2.5%, mainly due to the postponed petrol subsidy programme which is expected to drag the overall inflationary pressure in the coming months (2019E: +0.6% yoy).”
On monetary policy, BNM decided to maintain the overnight policy rate (OPR) at 3.0% during its November Monetary Policy Committee (MPC) meeting.
BNM said the current OPR level remains accommodative and supportive of the domestic economy despite weakening global economy and trade, and rising external downside risks.
“We believe that BNM’s decision to keep rates on hold is supported by the still resilient GDP growth and normalising inflationary trend in recent quarters. Nonetheless, we foresee one rate cut in 1Q20 to further boost domestic activities and growth amid challenging global economic conditions,” Alliance DBS said.
On the labour market, the research house projects a stable performance, with total employed persons rising to 15.3 million from 15.1 million last year.
Sixty-two per cent would be in the services sector, 16.2% from the manufacturing sector and 12.2% from the agricultural sector, it said. – Jan 6, 2020, Bernama
