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Malaysia must spend “a bit” more this year after the local economy grows at its slowest pace in a decade, according to economists. NST pix by Aziah Azmee.

KUALA LUMPUR: Malaysia must spend “a bit” more this year after the local economy grows at its slowest pace in a decade, economists said.

They said the private sector would likely to take a back seat in view of the global economic uncertainties brought by multiple factors, economists said.

They said it was timely for the government to craft a targeted fiscal stimulus to ensure domestic economy would continue to grow at a reasonable speed and be able to offset weaknesses from abroad.

The US-China trade war, geopolitical development in the Middle East, excess supply of crude oil and the coronavirus outbreak are expected to stunt global growth, particularly in China.

Malaysia’s gross domestic product grew 3.6 per cent in the fourth quarter of 2019, the slowest pace since the third quarter of 2009.

For the full year, the economy advanced by 4.3 per cent, the slowest pace since the global financial crisis of 2009 due to slowdown in all components on the expenditure side, MIDF Research said.

RAM Ratings said the potential support from monetary and fiscal policies would play an integral role in sustaining growth momentum.

“Expedient roll-out of projects as well as accommodative credit conditions are critical to driving growth this year amid such highly uncertain conditions,” added the firm, which maintained its GDP forecast for 2020 at a cautiously optimistic 4.5 per cent, despite notable downside risks.

RAM said the key determinants of the impact of these downside risks were the length and severity of the epidemic.

“This could shave 0.2 to 0.5 percentage points off our GDP growth projection for 2020. This is currently our best estimate of the impact given the still-fluid situation and a lack of confirmed official data,” it added.

OCBC Bank said the Malaysian economy had entered 2020 on a weak footing even before the coronavirus outbreak.

While the government was preparing a stimulus package to help, the bank cautioned against harbouring hopes of any forceful injection, given fiscal constraints.

“Indeed, given the denominator effect, the slower GDP growth that we are likely to see is already going to present some challenges to meeting the 3.2 per cent debt-to-GDP target,” its economist Wellian Wiranto said.

Bank Islam chief economist Dr Mohd Afzanizam Abdul Rashid said China’s economy had become entrenched with the global economy via the supply chain.

“The exogenous shock due to the virus outbreak could potentially undermine the production activities in China.

“This, in turn would have a ripple effect for companies that rely on China’s markets for exports as well as a source of raw material such as import from China,” he told the New Straits Times (NST) yesterday.

Afzanizam kept Bank Islam’s GDP forecast of 4.3 per cent, pending further development on the coronavirus outbreak.

AmBank group chief economist and head of research Dr Anthony Dass said the 4.8 per cent growth projected this year prior to the coronavirus impact would now be a strong challenge to be achieved.

“There is now more downside risk to growth in 2020. Much of 2020 performance will depend on how fast and effectively new stimulus measures are introduced to address the directly affected businesses,” he told the NST.

He said manufacturers would be affected by the supply chain disruption and services affected by tourism related businesses directly and indirectly.

“It is also how fast the construction or infrastructure projects outlined in Budget 2020 are rolled out, given that there is a lag effect. The faster these projects get started, it will in turn benefit all the backward and forward linkage business activities,” he added.

Bank Negara governor Datuk Nor Shamsiah Mohd Yunus said the Malaysian economy in 2020 would be underpinned by continued private sector spending, supported by stable labour market conditions and a gradual improvement in investment activities.

“Resumption of large infrastructure projects such as the Mass Rapid Transit, Pan Borneo, Light Rail Transit Line 3, Gemas-Johor Baru electric double-tracking rail project and East Coast Rail Link are expected to contribute around 100 basis points this year,” she added.

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