KUALA LUMPUR: Malaysia’s economy is expected to grow about 4.3 per cent next year driven by moderation in consumer spending and uncertainties in the global economy following the ongoing US China trade war.
However, higher deficit spending by the government of 3.2 per cent of gross domestic product (GDP) in 2020 from initial target of 3.0 per cent should provide a booster to the country’s economic growth.
Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said the GDP’s growth would be underpinned by higher mega infrastructure development expenditure, which would translate into more activities in the construction, manufacturing and services sectors.
He said the GDP’s target would also be supported by stable income growth, fairly steady employment market and better access to credit, encouraging consumers to spend more.
“However, businesses are likely to be cautious as the outlook for the final demand looks increasingly challenging.
“We believe the central bank and the federal government might enact expansionary economic policies to cushion the impact from slower global growth,” he said at a press conference after presenting Economic Outlook 2020: The Way We See It here today.
Mohd Afzanizam said it is vital for the government to stimulate the economy by proceeding ahead with the planned major infrastructure projects such as the East Coast Rail Link (ECRL) and High Speed Rail (HSR).
“In fact, the government can always find ways to fund the infrastructure projects through bond issuance like Malaysian Government Securities (MGS) and Government Investment Issue (GII).
“These issuances have always been oversubscribed by foreign investors, banks, institutional investors, asset management companies and pension funds,” he added.
On the country’s nominal export growth, he said there might be a contraction of 1.5 per cent this year, followed by a growth between 1.8 per cent and 2.0 per cent next year.
“The global smartphone shipment has picked up by 0.8 per cent in the third-quarter of 2019. This was mainly driven by Huawei and Samsung smartphones production as well as the 5G network rollout which will be the catalyst for semiconductor growth going forward,” he said.
This would in turn spur Malaysia’s manufacturing for the electrical and electronic (E&E) sector as the country’s exports for smartphones components likely to increase.
However, local companies were not keen on increasing their capital expenditure as they prefer to utilise the existing capacities at their manufacturing facilities.
“Businesses have been complaining about their lacklustre sales performance and decline in domestic and external orders.
“Sentiments among the private sectors have been sluggish as consumers are plagued with rising cost of living and weaker current finances and stagnant growth employment,” he said.
On the local equity market performance, he said the construction, technology and energy sectors would likely boost Bursa Malaysia growth next year despite the massive foreign capital outflow.
The KLCI benchmark likely to reach 1,600 points this year and 1,650 points in 2020, Mohd Afzanizam said.
He also expected the banking sector to grow at a slower pace next year dragged by lower net interest margins and reduction in interest rate.
According to MIDF Research analyst Adam M Rahim, foreign investors have reduced exposure in the local stock market with RM9.9 billion in capital outflow as of November this year.
“KLCI was at 1668.11 points on January 2, 2019 and yesterday's (December 4, 2019) close was at 1560.93 points. About 107.18 points has dropped during the period under review,” he said.
On ringgit performance against the US dollar, Mohd Afzanizam said the local currency might linger between 4.2 and 4.3 against the greenback next year.
“This projection is based on the potential tariff enforcement by the US and China due to the ongoing trade war, which likely result in higher demand for safe-haven currencies such as US dollar and the Japanese Yen,” he said.
He said Malaysia has the ability to defend a potential recession on the back of stronger monetary and fiscal policies by the government.
“These measures are important for the government to spur local spending to keep the economy growing,” he said.