Greater Kuala Lumpur, The Regional Headquarters Location For Multinational Companies In Asia
Business

IMF slashes India’s FY20 GDP growth projection to 4.8%

KUALA LUMPUR: The International Monetary Fund (IMF) expects Malaysia’s economy to bounce back to grow a whopping nine per cent next year, from an expected 1.7 per cent contraction in 2020.

This will be the fastest among Asean-5 economies, which according to the IMF is likely to expand at an average 7.8 per cent next year.

Asean-5 also comprises Indonesia, Thailand, the Philippines and Vietnam, whose gross domestic product (GDP) are projected to grow 8.2 per cent, 6.1 per cent, 7.6 per cent and 7 per cent respectively.

Malaysia’s solid projection will also set to outpace the global GDP growth, which the IMF expects to recover 5.8 per cent next year, sharply higher than the contraction of 3.0 per cent for 2020.

“Domestically, in 2021, we are cautiously optimistic that consumer confidence and sentiment will turn positive and Malaysian households will remain financially sound, supported by improving employment conditions and stable incomes, as global and domestic economies recover next year,” the IMF said.

“We believe Malaysia’s economic fundamentals will remain sound going forward, supported by the government’s fiscal discipline and fiscal consolidation, a sustainable (though narrowing) current account surplus, healthy foreign-exchange reserves as well as manageable inflationary pressure,” it added.

The Washington-based fund, in its statement late Tuesday, cautioned of “extreme uncertainty around its global growth forecast.

This was due to the pathway of the Covid-19 pandemic including intensity and efficacy of containment efforts, extent of supply disruptions and repercussions of the dramatic tightening in the global financial market.

Analysts expects the IMF to make further downward revisions to global GDP forecasts this year and 2021.

Affin Hwang Investment Bank Bhd believes that no emerging markets, including Malaysia, can escape the downside risks of global recession this year, as advanced economies fall into recession.

Affin Hwang believes sovereign rating agencies would continue to monitor Malaysia’s macroeconomic developments, focusing on its economic growth, fiscal deficit and government debt, from the impact of Covid-19 and low global oil price.

“We believe that improving Malaysia's economic fundamentals will likely be the best option to ensure that the country's sovereign rating outlook be kept as stable by international rating agencies.”

Affin Hwang said there is a need for pragmatic measures on the tax and expenditure programme to improve the government’s budgetary position, and remain committed towards fiscal discipline and consolidation.

“We believe the government will be looking at ways to cut discretionary spending and slow the increase in operating expenditure to safeguard the country’s operating surplus position since 1987.

“A sizeable operating surplus is important, where historically, the country’s annual deficits were financed partly by government borrowings channelled towards development projects, and not for operating expenditure.”

The government might be required to make some adjustments to the 2020 Budget and fiscal deficit target, if there is a need to introduce further new stimulus measures, Affin Hwang said.

“Following the announcement of the additional Prihatin stimulus package on April 6, the direct fiscal injection by the government has increased from RM25 billion to RM35 billion. This is equivalent to 13.5 per cent of the total stimulus.

“Looking at the breakdown of the direct fiscal injection including the recently-announced additional RM10 billion, most of the injection has been directed to the small medium enterprises wage subsidy programme at RM13.8 billion (39.4 per cent of total injection) and Bantuan Prihatin Nasional (BPN) at RM10 billion (28.6 per cent of total injection).”

The government, it said, would ensure that federal government debt remains below the self-imposed limit of 55 per cent of GDP, as well as maintain an operating surplus.

“We believe meeting the fiscal deficit target will help the government to build a solid reputation for fiscal discipline and prudence. This is especially necessary after the downgrade of Malaysia’s sovereign credit outlook from stable to negative by Fitch Ratings recently,” Affin Hwang said.
Source: NST