Budget 2019 by the new government presented its fair share of challenges —trying to achieve fiscal prudence without derailing the economy and hurting the wellbeing of the rakyat. In our view the fiscal deficit of -3.7% of GDP in 2018 and -3.4% of GDP in 2019 before reaching -3.0% in 2020 turned out to be much better than we thought. While there could be arguments citing the new government has clearly departed from the previous one who planned to balance the budget by 2020, we feel the comparison is not justifiable given that the new government has included some data that were not presented in the past. And with greater emphasis on transparency and governance, it will provide a bigger dividend to the country.

On the economic growth outlook, we found the government’s GDP projection to be credible. For 2018, the government projects the GDP at 4.8% which falls within our forecast of 4.8%–5.0% and 4.9% for 2019 which is higher than ours of 4.5%–4.8%. Growth will be supported by private expenditure and complemented with exports as well as public investment. Meanwhile, the GDP could “undershoot or overshoot” in 2019 largely due to external challenges. The US-China trade war may result in a potential currency war especially if China systematically devalues the yuan. The US Fed’s aggressiveness on its monetary tightening will add adverse pressure on emerging markets, especially those with high USD-denominated debt, especially countries with twin deficits. Meanwhile, on the domestic side, the government’s efforts to help minimize the tax burden on ordinary households and assist key businesses as well as address corruption and raise fiscal transparency should pay large dividends. With better engagements in the future with investors, it will boost confidence.

SMEs’ growth has consistently surpassed the national GDP growth over the past 14 years, averaging at 6.6% per annum versus 5.1% national GDP. With a greater role expected as we going forward, we welcome the government’s move to raise productivity by encouraging more SMEs to adopt new technologies in the digital platforms like ecommerce, mobile-commerce and social-commerce platforms due to a high adoption rate of around 85%–90% through Industry 4.0. This will improve their revenue, open new markets, improve customer service support and experience, and provide a more efficient end-to-end customer journey. And by providing more strategic advice, counsel and initiating networking platforms to facilitate knowledge exchange, we expect the gap between SMEs and larger industry players will narrow through technology.

Source: AmInvest Research - 2 Nov 2018