Further monetary easing, expansion of stimulus could help economy amid Covid-19 pandemic: Kenanga

PETALING JAYA: Given the economic challenges brought about by the Covid-19, Kenanga Research believes that the most effective counter-cyclical supports are further easing of monetary policy, the acceleration/reinstatement of sensible infrastructure projects and expansion of the stimulus budget.

“An expanded stimulus could perhaps could include emphasis on workers’ welfare especially those in the B40 and M40 categories in the form of temporary financial assistance for workers whose wages are effected by cost cuts or unpaid leave.”

“The government may also inject additional grants for SMEs as they are a major source of employment in the country,” the research house said in a note yesterday.

With regard to the implementation of infrastructure projects, it said large-scale infrastructure projects that are currently suspended will probably be back in focus namely the KL-Singapore High Speed Rail, Johor Baru-Singapore Rapid Transport System and the MRT3.

“Reviving at least one of them, the funding which is not beyond means at it comes under the 12MP will inject much confidence to an already moribund construction sector.”

Due to the limited fiscal room to manoeuvre, Kenanga opined that at least a significant part will be via public-private partnership in which the federal government will provide the debt guarantee instead of direct funding.

Since the Covid-19 outbreak has been declared a global pandemic, the research house said fiscal expansion is crucial in supporting the growth trajectory from further setbacks.

“Hence, we reckon the government needs to add at least another RM3 billion to the fiscal stimulus. As a result, the budget deficit is expected to widen by just 0.6% to 4.3%. This poses a challenge to fiscal consolidation and raises the risk of sovereign ratings downgrade.”

On the monetary policy, it said Bank Negara Malaysia (BNM) still has space to lean towards further rates cut backed by a subdued inflation in the absence of demand-pull pressure and the impact of supply-side shock from the sharply lower oil prices as well as the potential economic downturn due to Covid-19 impact.

“Should the global or domestic economy weaken more than expected, it would not surprise us if BNM were to cut OPR by another 50bps to take it down to 2% which was the global financial crisis low.”

The research house said a 25bps cut may inject around RM3 billion into incomes of households and in a worst-case scenario of a full 100bps cut this year (from where it started at 3%), this could increase spending power by as much as RM12 billion or 0.7% of GDP.

Meanwhile, Kenanga foresees Malaysia’s GDP growth to slow further to 3.1% in 2020 as external demand remains weak in the immediate term, dragged by the escalating Covid-19 and global oil price war.

The first-half growth is projected at 2.3% before gradually rebounding to 3.9% in the second half.

“The revision to the GDP forecast is mainly attributable to the potential economic fallout in the services sector as transportation, and the tourism-related industry will be the most substantially hit from the outbreak as well as the impact of oil supply shock,” it said.

source https://www.thesundaily.my/business/further-monetary-easing-expansion-of-stimulus-could-help-economy-amid-covid-19-pandemic-kenanga-GC2136697