Sustaining economic growth momentum the priority amid political uncertainty

PETALING JAYA: The political events that have rapidly unfolded since Sunday have left everyone with little time to catch their breath, but, fortunately, some calm seems to have been restored following Tun Dr Mahathir Mohamad’s appointment as interim prime minister.

However, the fate of the Malaysian economy and the stock market still hangs in the balance.

Whatever comes next on the political front, the new government will have to focus on ensuring the sustainability of the country’s economy.

In a note by Affin Hwang Capital Research, it said over the near term the current domestic political uncertainty could further derail consumer and business sentiment and spending, but the uncertainty should not derail the country’s growth momentum further.

“The immediate focus will also be on how the government addresses strategy in supporting private investment activity, where growth has been slow in recent quarters,” it said.

As for the revival of infrastructure projects, it said that should these be delayed again, investment will not provide a second leg to the economy, which needs to complement the growth of private consumption.

The research house said it is maintaining its real gross domestic product (GDP) growth forecast for this year at 4%, lower than the current official forecast of 4.8%, with expectations that the fiscal stimulus package (which may not be unveiled later) will provide some support and stability to economic growth.

Affin Hwang also highlighted the concerns over Malaysia’s fiscal deficit position and what will be done to address them.

“In our opinion, despite the current political situation, the risk of the country’s sovereign rating outlook being downgraded is manageable, but we believe the government will need to demonstrate its firm commitment to fiscal consolidation.

“Overall, as soon as the political uncertainty gets resolved and stabilises, the implementation of institutional reforms could provide a long term sustainability of private investments, which the economy needed to support the well-being of the country,” it said.

After taking power in May 2018, the Pakatan Harapan government had reduced the fiscal deficit from 3.7% of GDP in 2018 to 3.4% in 2019, and was expected to be lowered to 3.2% in 2020.

Meanwhile, in a separate note, Hong Leong Investment Bank Research (HLIB Research) said it feels that some of the economic policies that are at risk include a change in the fuel subsidy mechanism, from the current blanket method to a targeted approach, and the proposed stimulus package – which has been postponed from tomorrow – in response to the Covid-19 outbreak.

“Our 2020 CPI forecast of 2.0% would be lowered to 1.7% if delayed to mid-year and 1.5% if not implemented at all. On the other hand, delays in the stimulus rollout would mean greater negative ramifications of Covid-19 to the economy,” it noted.

HLIB Research reiterated its expectation of another 25 basis point cut to the Overnight Policy Rate in the first half of the year, premised on the negative impact of Covid-19, downside risks to inflation and fiscal stimulus uncertainties or delays.

The research house said it is expecting another sequential decline in GDP growth for first-quarter 2020, while its 2020 forecast is at 4.1%, down from 4.3% in 2019.

The current domestic political uncertainty could further derail consumer and business sentiment and spending in the near term. –BERNAMAPIX

source https://www.thesundaily.my/business/sustaining-economic-growth-momentum-the-priority-amid-political-uncertainty-ID2050468