KUALA LUMPUR, Feb 28 — The RM20 billion economic stimulus package will roughly add about 1.4 percentage points to the country’s Gross Domestic Product (GDP) in 2020, which has already been revised lower to between 3.2-4.2 per cent from the government’s earlier target of 4.8 per cent.
On the government’s fiscal position, after the adjustment to the revenue and expenditure of the stimulus package, the government has also revised the country’s budget deficit position slightly higher to 3.4 per cent of the GDP in 2020, from the initial target of 3.2 per cent previously.
The government announced the stimulus package yesterday which was designed to tackle the widespread impact of Covid-19, the official name for the 2019 novel coronavirus announced by World Health Organisation (WHO).
“It is necessary to ensure that Malaysia’s economic growth will remain stable as the government’s revenue from direct taxation fluctuates with the performance of the economy,” Affin Hwang Investment Bank Bhd said in its research note here, today.
“Sovereign rating agencies will continue to monitor Malaysia’s macroeconomic developments, but with economic fundamentals intact, we believe the country’s sovereign rating outlook will be kept as stable by international rating agencies.”
On the macroeconomic impact, Affin Hwang believes it is too early to indicate whether the negative effects from Covid-19 on the global and domestic economy would be comparable to the 2002-2003 Severe acute respiratory syndrome (SARS) outbreak.
“However, we believe the fiscal stimulus package, if properly implemented, will help to strengthen the country’s aggregate domestic demand, especially private consumption growth as it has included measures to assist certain sectors and industries affected by Covid-19, especially hotels, airlines, travel companies and the tourism-dependent retail industry.”
Bank Negara Malaysia (BNM) may likely cut its overnight policy rate (OPR) by another 25 basis points to 2.5 per cent for 2020, having reduced it by 25bps to 2.75 per cent from three per cent last month.
During the SARS epidemic, prior to the introduction of the OPR in April 2004, BNM lowered its 3-month intervention rate by 50bps to 4.5 per cent to reinforce measures introduced by the government in order to support Malaysia’s economic growth.
Moody’s Analytics which has said that Covid-19 is no longer contained to China and this has increased the downside risks to our outlook for global growth this year, also opined that BNM will further cut policy rate.
It stressed that the Asia-Pacific region’s exposure to the virus is significant, adding that the Philippines, Indonesia and Thailand had all taken the path of rate cuts.
“The most important channel of impact is via the close trading relationship with China. China is the largest trading partner for most economies across the region and with economic activity in China severely depleted by the virus, the repercussions will flow through to the rest of the region.”
Supply chains are disrupted, weakened economic demand in China is hurting interest for final goods and commodity prices are slumping.
There is no other country in Asia or globally that so many economies throughout the Asia-Pacific region are so heavily tied to.
Going forward, the positive effects stemming from the combined accommodative monetary policy and fiscal stimulus expansion in Malaysia is expected to support the country’s domestic demand and consumer spending, said Affin Hwang.
— Bernama
