Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on October 4, 2018

KUALA LUMPUR: In Budget 2019, the Pakatan Harapan government is expected to ease monetary policy while keeping to fiscal and debt consolidation amid forecasts of lower growth next year.

In a report yesterday, Standard Chartered Global Research asserted that private consumption may be the only significant growth driver for the country in 2019, increasing the likelihood the administration will loosen monetary policy. Even then, private consumption is projected to moderate in the second half of 2019.

“Meanwhile, inflation is likely to exert less influence on monetary policy in the near term due to expected volatility in inflation prints (as a result of administrative measures) through late 2019.”

It did not touch on how monetary policies could be eased but adjustments to corporate and individual income tax rates are unlikely, according to UOB Global Economics & Markets Research senior economist Julia Goh.

“New taxes such as soda or digital economy taxes are possible but we think (the) bulk of efforts would focus on trimming unproductive spending,” she said.

On top of that, she highlighted that cash aids and fuel subsidies are likely to be reviewed to make them more targeted.

In September, Standard Chartered revised Malaysia’s 2018 gross domestic product (GDP) growth downwards to 4.8% from 5.3% previously, and improving to 5% next year.

Economic growth has decelerated since 2017 when the economy expanded by 5.9% and in the near term, Standard Chartered expects a rising dependence on private consumption for growth particularly as the investment outlook dims because of the slowing construction sector and review of mega projects, as well as moderating external demand.

To this end, UOB’s Goh expects the government to announce measures to spur investments and growth given lingering risks on the global front and signs that the domestic economy is moderating.

“This includes initiatives to incentivise automation and modernisation, industry 4.0, and higher value-added segments.

“Areas of focus are likely to be affordable housing, automotive, transportation, tourism, e-commerce, and renewable energy,” she said in a Budget 2019 Preview released yesterday.

In the report, she projected the fiscal deficit at 3% of GDP in 2019, compared to an estimate of 2.8% in 2018.

Standard Chartered also pegged the budget deficit at 3% for both 2019 and 2020, as it pointed out that the loss of revenue from the goods and services tax (GST) is likely to make it more difficult to keep fiscal consolidation on track.

UOB’s Goh clarified that the size of the budget deficit will depend to a large extent on revenue collected from the sales and services tax, refunds for GST input tax credits, income tax, and real property gains tax, and petroleum, as well as asset monetisation, and the degree of cuts in the operating expenditure.

      Print
      Text Size
      Share