By Stephanie Jacob
Edward Lee
The Malaysian economy is expected to see around 4.7% gross domestic product (GDP) growth in 2016 said Standard Chartered head of economic research for Asean Edward Lee. He said that consumption will continue to the the main support for growth, while investments are likely to be at similar levels to what was seen in 2015.
Lee also said he expects Bank Negara Malaysia (BNM) to cut its overnight policy rate (OPR) by 25 basis points at some point this year. He acknowledged that the market seems to be leaning towards the central bank maintaining the rate over concerns such as the return of high levels of household debt.
But he opined: “I think in this environment that even if you cut the rate by 25 basis points, I do not think it is going to boost household leverage, given that sentiment has really been curtailed. And I think a key point is that external demand is not there. So even though monetary conditions have been loosened by the weakening of the ringgit’s real effective exchange rate (REER), without external demand you possibly need a bit of support for the domestic (growth).”
Meanwhile, Lee said that it is possible that the government may be willing to accept a small upwards revision of its fiscal deficit in an attempt to deal with the ongoing headwinds. The government’s current target is to reduce the fiscal deficit to 3.1% of GDP for 2016 from 3.2% in 2015.
Last week, the government announced that it will recalibrate the Budget it announced back in October 2015 in light of continuing fall in oil prices.
Lee said that there are multiple issues for the government to consider in undertaking this recalibration. These include trying to continue its fiscal consolidation measures, its long-term infrastructure projects, which are important for future growth, and dealing with the impact of the falling oil prices on its revenue.
“So if I could guess, I would say that there might be small tweaks or adjustments to expenditure while they try to maintain their fiscal consolidation stance. And maybe they will increase their budget deficit by 1 or 2 percentage points of GDP,” said Lee.
Asked if he thought it was an appropriate time to for the government to consider cutting its development expenditure budget, Lee said: “Unfortunately again, the wiggle room is very little. If that development project’s multiplier effect on growth is small, then there may be value in delaying it.”
He said this view was also based on the need for Malaysia’s current account to remain in surplus as it has already been affected by the sharp fall in crude oil, liquid natural gas and crude palm oil prices.
“So while we would like the development expenditure to continue because it means a lot to the longer-term development of Malaysia, I think that given that revenue is a constraint, if its multiplier on growth is not great, then postpone it,” he said.
You must be logged in to post a comment.