KUALA LUMPUR (July 23): Affin Hwang Investment Bank Bhd sees sovereign rating agencies maintaining Malaysia's sovereign rating at "stable", even if the country's fiscal deficit falls short of the targeted 3% in 2020, amid global trade tensions between the US and China.
"From my perspective, even if Malaysia's fiscal deficit is in the region of 3.2% and 3.4% going into 2020, and not 3% as guided, we still think that as long as the higher fiscal deficit due to rising possible spending in development expenditure is supportive of economic growth… that is a positive move by the government," said chief economist and head of research Alan Tan.
Yesterday, it was reported that Finance Minister Lim Guan Eng said Malaysia will find it challenging to meet its 3% fiscal deficit target for next year due to the uncertainties around the US-China trade war.
In times of uncertainty, he explained that there is a need for the government to adopt stimulus measures in the upcoming Budget 2020, which is to be tabled on Oct 11, to cushion the slowdown in exports and to support the Malaysian economy.
Tan expects Budget 2020 to be an expansionary budget, where the government would come out with more business and consumer-friendly incentives to give the economy a short-term boost and as a buffer against the external environment.
On the country's gross domestic product (GDP), the research house maintained its forecast of 4.5% growth for the Malaysian economy supported by private consumption. With the ongoing trade war, Tan reiterated that Malaysia in the short term would benefit through the trade diversion.
With a compromise yet to be seen between the world's two largest economies, Tan sees a higher possibility that the Sino-US trade tension will be full blown towards the end of third quarter and fourth quarter of this year, which would potentially lead to a global recession.
"We don't see the trade war between US and China resolved any time soon. There is a strong possibility that the US will start imposing [tariffs on] US$300 billion [worth of] goods to the US," said Tan.
He elaborated that this could potentially drag global economic growth by as much as 0.5%, if the trade war escalates. Presently, the International Monetary Fund (IMF) has forecast global GDP growth at 3.6% for 2020.
This would mean that Tan foresees global GDP growth at 3.1% in 2020.
"At 3.1%, that is close to a global recession," said Tan, adding that global GDP growth below 3% signifies a global recession.