This article first appeared in The Edge Financial Daily on October 15, 2019

KUALA LUMPUR: While some have said the government is too optimistic about its forecast of 4.8% gross domestic product (GDP) growth for next year, Finance Minister Lim Guan Eng emphasised the economic projections in Budget 2020 are based on stress-tested figures.

“The projections that we have made are all based on stress-tested figures. We have managed to keep within the projections over the last two years and we will continue to maintain that. If there are any contingencies, of course we will do the necessary revisions.

“In 2018, despite many predictions otherwise, we managed to keep within the average,” he told the press, following the end of his session at the Budget 2020 Forum yesterday.

During the question-and-answer session following his keynote address at the event, Guan Eng was asked if the GDP growth forecast for 2020 is realistic. Wong & Partners partner Wong Sue Wan, moderating the session, pointed out the International Monetary Fund (IMF) is looking to revise its numbers.

“You may have used the IMF figures in July this year and the IMF is due to revisit those numbers. Would that change your view on Malaysia’s GDP growth?” asked Wong.

Guan Eng said the economic growth forecast will be contingent on Malaysia’s performance this year up to the first quarter of next year, adding that the government will revise its figures if there is a necessity to do so.

“We will not hesitate in making revisions when necessary. We want to be open and transparent.

“These figures are in line with what I think other institutions like Bank Negara [Malaysia] projects for next year. In the event of a downturn, the fact that we have allowed the deficit figures to widen from the targeted 3% to 3.2% would provide us with that fiscal room to make the necessary adjustments,” he said.

During the tabling of Budget 2020, Guan Eng said the Malaysian economy is expected to grow  4.7% in 2019 and 4.8% in 2020, with the government ready to step in with contingency measures to provide further support or stimulus to growth.

Some quarters had previously said the target is too optimistic, including the Socio-Economic Research Centre (SERC), expecting a 4.5% growth for 2020.

“It (the projected rate) is on the high side, given increasing external uncertainties from the trade war and continuing volatility in the financial market, amid the still-cautious domestic business confidence,“ said SERC executive director Lee Heng Guie.

OCBC Bank chief economist Selena Ling echoed a similar sentiment, saying even with the overt efforts in Budget 2020 to prop up private consumption, accounting for nearly 60% of GDP by expenditure, the overall growth target may be hard to achieve. While private consumption is expected to grow at a relatively healthy rate, she said GDP may be dragged by other economic engines.

“Specifically, we see the investment cycle experiencing some challenges ahead. A slump in the capital goods imports of late may be a sign that there is likely a slowdown in the fixed capital formation, comprising nearly a quarter of the economy.

“Meanwhile, even though exports may look like they are not a sizeable contributor to growth in net-of-import terms, any marked slowdown in the global trade cycle would lead indirectly to employment and spending pullback,” Ling said in a statement.