ICAEW: Malaysia’s 2020 GDP growth may slow to 4%

KUALA LUMPUR: The Institute of Chartered Accountants in England and Wales (ICAEW) has forecast that Malaysia’s gross domestic product (GDP) in 2020 may slow to 4% from 4.4% expected for this year.

Economic advisor Sian Fenner said the cautious outlook was primarily driven by the moderating household spending.

“Household spending is still going to remain quite healthy but we’re not expecting the 7% growth that we have been experiencing, ” she told reporters at the launch of the ICAEW Economic Insight: South-East Asia Q4 Report here yesterday.

Fenner said several tailwinds that have supported growth continued to fade, while the effects of the sluggish global environment will start to have a larger impact on the domestic economy.

“There is no longer support from the goods and services tax being abolished or tax holiday, we are seeing inflation starting to jump a little bit, ” she said.

The ICAEW projection is rather pessimistic compared with the Bank Negara’s GDP forecast of 4.8% for next year and 4.7% this year.

Commenting on ICAEW’s rather gloomy forecast, she said the government is maintaining a prudent budget and continues to have emphasis on fiscal consolidation.

“To get the 4.8%, you will need to expand the budget deficit significantly, you won’t be looking at consolidating. You need to support more on consumer spending such as having cash handouts for example, tax rate cut, ” Fenner opined.

She said although there has been some progress in the US-China dispute, friction between the two countries remains high and the bulk of imposed tariffs are unlikely to be lifted anytime soon.

“Alongside slower Chinese domestic demand, we are cautious that the outlook for exports and private investment will remain challenging.

“Inflation dynamics are also expected to favour a more accomodative monetary policy stance for Malaysia.

“We believe that more monetary policy easing is warranted, given the mildly expansionary budget for 2020, ” she said.

ICAEW, according to her, expects Bank Negara Malaysia to reduce the policy rate by a further 25 basis points cut in the first quarter of 2020 to 2.75%.

This is following the recent 50 basis points cut in the US Statutory Reserve Requirement.

Overall, she said Malaysia’s inflation is forecast at 0.7% for 2019 with the likelihood of rising to 2.1% next year, on par with the country’s average inflation over the past decade.

Employment growth is also expected to ease to 1.9% year-on-year in third quarter of 2019, while real wages grew by 0.5% in the same period.

“There are some positive, we do think that growth will be a little bit more broad base after investment being made this year. We actually wait for it to turn around, particularly the approval of some of the infrastructure projects.

“In terms of foreign direct investment for the Southeast Asian region, if we look at the medium term sort of score card of investment attractiveness.

“We see Malaysia is just below Vietnam, that is number two and that is because of the quality of labour and the ease of doing business here.

“Within the region, Malaysia could actually be the country to benefit from the ongoing US-China trade war, ” she added. — Bernama

Source: https://www.thestar.com.my/business/business-news/2019/12/06/icaew-malaysias-2020-gdp-growth-may-slow-to-4#bOwucT0BVRqVGjHt.99