Govt confident of 2Q growth, to consider expansionary budget

By MARK RAO / Pic By TMR

THE government is confident of achieving a healthy economic expansion for the second quarter of 2019 (2Q19) and may consider an expansionary budget to fuel economic growth, according to Finance Minister Lim Guan Eng (picture).

This comes shortly after Malaysia’s Consumer Price Index (CPI) for June rose 1.5% year-on-year (YoY) for a 13-month high, as the zero-rating of the Goods and Services Tax (GST) on June 1 last year resulted in the increase in all, but two main price categories.

Lim said the generally low and stable inflation, as measured by the CPI, is taking place amid a robust domestic economy which includes growth in industrial production and exports, as well as the wholesale/retail and vehicle sales.

“These indicators point towards a healthy 2Q GDP expansion, after the Malaysian economy grew sustainably at 4.5% YoY in 1Q19,” he said in a statement last Friday.

“The government is positive about the prospects for sustainable economic growth for the 2Q.”

He added that the government will continue to prioritise economic growth and will consider an expansionary budget to ensure the rakyat’s economic wellbeing, while achieving shared prosperity.

The 2020 budget is scheduled to be tabled in Parliament on Oct 11, where the government could introduce fiscal stimulus if opting to utilise expansionary policies.

The current ruling government was forced onto a path of fiscal consolidation after discovering it inherited RM1.09 trillion in debt, or 80.3% of GDP, shortly after coming into power in May last year.

This forced several economic stimulus packages, typically in the form of mega infrastructure projects, to be put on the backburner as the government sought to get their accounts in order.

After achieving significant cost savings, many of these mega projects have been revived, including the multibillion-ringgit East Coast Rail Link and Bandar Malaysia developments.

Bank Negara Malaysia also opted to lower the Overnight Policy Rate by 25 basis points to 3% in May this year, a move which is expected to boost domestic consumption.

Malaysia’s June CPI number brought inflation for the first half of the year to 0.2%, supported by four consecutive months of inflation from March to June which countered CPI slipping to negative territory in January and February.

Economists had expressed their concerns when Malaysia’s CPI declined 0.7% YoY in January this year followed by a further decline of 0.4% in Feb- ruary, as this was the first time the country experienced deflation since the 2009 global financial crisis.

The last time the country registered contractions in CPI, from June to November 2009, the economy declined 1.5% that year.

Lim said Malaysia’s CPI print for June was influenced by the change in tax regime from GST to the Sales and Service Tax and the reduction in the retail price ceiling for RON95, which helped lower inflation and alleviate cost of living pressures.

Meanwhile, he said the country’s industrial production is growing above market consensus for three consecutive months up to May this year, while exports also grew above expectations that month.

Hence, YoY, wholesale and retail sales rose 5.6% and 8.3% respectively, for the first five months of 2019 while vehicle sales jumped 13% over the same period, indicating healthy domestic demand, Lim added.

BIMB Securities Sdn Bhd said the sharp pickup in June inflation was consistent with its expectations that the effects from post-election policy changes, including the zero-rating of the GST, will fade from June onwards.

“Beyond this, inflation will likely remain range-bound between 1.5% and 2% in the coming months due to weak growth momentum and a lack of inflationary pressure,” it said in a report last week.

MIDF Amanah Investment Bank Bhd anticipates headline inflation to average at 0.6% YoY in 2019, lower than the 1% inflation noted last year, with the food component providing upside pressure and the RON95 cap providing downward pressure to the CPI reading.

For June, CPI for food and non-alcoholic beverages grew 2.3% YoY, placing behind furnishings, household equipment and routine household maintenance (up 3.1%) and recreation services and culture (up 2.7%) categories.

Meanwhile, inflation numbers for Kuala Lumpur, Penang and Selangor/Putrajaya came in higher than the national CPI reading at 2.2%, 2.2% and 1.7% respectively.