• Expect an expansionary budget with focus on the lower and middle income segments

• GDP growth estimate to be revised higher

• Budget deficit target of 3.0% and 2.9% for year 2017 and 2018 respectively

• Setting the foundation for TN50

• Rising cost of living and housing remain top of the list

• The budget will sustain the momentum of core infrastructure spending

The 2018 Budget, to be unveiled on Oct 27, will be a deft balancing act between keeping a broad-based sustained economic growth and meeting public expectations for a more generous package. This budget is about creating a “feel-good” factor ahead of the 14th General Election (GE14) which is just around the corner. We believe the Budget 2018 would continue to be people-centric, and focus on developing the wellbeing of the rakyat in line with the theme of Budget 2018 “Shaping the Future”. Furthermore, 2018 marks the mid point stage of the government’s journey through the 11th Malaysian Plan (11MP) and the government has to step up its game in the race to achieve vision 2020.

GDP growth estimate to be revised higher

We expect the government to revisit its 2017 GDP growth projection of 4% - 5% range in Budget 2018 as the economy has grown beyond expectation in 1Q17 and 2Q17 by 5.6% and 5.8% respectively, bringing the 1H2017 average to 5.7%. The robust growth was supported by strong exports and continued to be anchored by domestic demand. 2017’s real GDP growth estimate to be revised higher to 5.0% - 5.5% given a robust performance in 1H17. For 2018, we expect government to target a higher growth of 5.0% - 6.0%, in tandem with the assessment made by International Monetary Fund (IMF), which projected the global economy to grow at a faster pace of 3.6% in 2018.

Generally, this budget is expected to be slightly expansionary, with the government expenditure rising moderately due to higher revenue from slightly higher oil prices and higher tax collection. Despite the higher government spending, the budget will remain prudent, keeping the fiscal consolidation on track. The budget deficit will decline slightly to 2.9% of the GDP for 2018, from 3.0% in 2017 on expectation of higher revenue from stronger crude oil prices and tax collection with prudent spending.

The 2018 Budget will keep a firm eye on Malaysia’s economic transformation and TN50. This means more incentives and measures to support initiatives on technology and innovation, including the digital industry, and preparing students and workers to boost their skills.

Setting the foundation for TN50

In line with the budget’s theme of “Shaping the Future”, the Government is expected to implement measures that would be favorable in achieving the TN50 objective. According to Prime Minister Datuk Seri Najib Razak, most of the inputs from TN50 road shows and dialogues across the country would be considered under Budget 2018.

Source: BIMB Securities Research - 24 Oct 2017