Govt to consider trade war diversions in Budget 2020


THE government’s preparations for Budget 2020, due to be tabled on Oct 11, will consider risk scenarios caused by the ongoing trade war between the US and China as it seeks to capitalise on trade diversions to Malaysia.

Finance Minister Lim Guan Eng (picture) said the federal administration is going with a business-friendly approach to take advantage of the permanent reorientation in the global supply chain.

“Malaysia is a small, open economy that is deeply embedded in the global supply chain. The government recognises the downside risk that exists from a slower global growth, especially when Malaysia’s top trade partners are experiencing an economic slowdown,” Lim said in a statement.

Malaysia exceeded market expectations with a 4% Industrial Production Index (IPI) growth in May 2019 based on recent data released by the Department of Statistics Malaysia.

The solid IPI growth surpassed expectations of a 3.5% rise, as compiled by Bloomberg. This is the third consecutive month that Malaysia’s actual industrial production has beaten market consensus.

In contrast, industrial production in other Asean economies experienced a contraction. In the Philippines, Singapore and Thailand, factory output fell 2.1%, 2.4% and 4% respectively in May 2019.

Lim believes that persistent industrial production expansion for Malaysia in the month of May, together with solid expansion in exports and domestic demand, point towards sustained GDP growth in the second quarter of 2019.

The World Bank forecast that Malaysia will enjoy a 4.6% GDP growth for the whole of 2019. Malaysia’s manufacturing sales grew 6.7% year-on-year (YoY) to RM69.7 billion in May 2019 from RM65.5 billion a year ago, while exports expanded by 2.5% YoY. Export growth for the month was supported by increased global demand for local electrical and electronics, as well as chemical products.

Lim added that the expansion of both exports and industrial production signals that the Malaysian economy is resilient in overcoming external disruption.

Apart from industrial and trade statistics, other indicators also showed promising trends, he said.

Inflation rates for May 2019 was low and stable at 0.2%, while vehicle sales for May surged 41% to 60,780 units, versus 42,977 units in May 2018. For the January-May 2019 period, 253,808 units of vehicles were sold, which was 13% higher than the same period last year.

He highlighted that Malaysia’s jobless rate also fell to 3.3% in May from 3.4% in the preceding month. The number of unemployed persons declined to 519,800 persons in May, from 523,300 persons in April.