Focus on Stimulating Growth and Protecting Jobs to Counter Covid-19

YAB Tun Dr Mahathir Mohamad, Interim Prime Minister of Malaysia, unveiled the much-anticipated fiscal stimulus package to support the country’s economic growth and to counter the negative effects from the Covid-19 outbreak, which has dampened consumer and business sentiment in 1Q2020. For this purpose, the Government rolled out an Economic Stimulus Package valued at RM20bn that we estimate will roughly add about 1.4 percentage points to GDP growth in 2020. Nevertheless, taking into account the uncertainty in the global economy and slower domestic demand, the Government has revised lower Malaysia’s GDP growth forecast to a range of between 3.2-4.2% for 2020, against the Government’s earlier 4.8% projection as announced in Budget 2020 in October last year.

On the government’s fiscal position, after the adjustment to the revenue and expenditure of the stimulus package, the Government has also revised the country’s budget deficit position slightly higher to -3.4% of GDP in 2020, from the initial target of -3.2% of GDP, the same level of deficit at -3.4% of GDP as last year. The economic stimulus package is necessary to ensure that Malaysia’s economic growth will remain stable as the Government’s revenue from direct taxation fluctuates with the performance of the economy.

Nevertheless, we believe the Government will be reverting back to the fiscal consolidation path when the economic environment stabilises. Sovereign rating agencies will continue to monitor Malaysia’s macroeconomic developments, but with economic fundamentals intact, we believe the country's sovereign rating outlook will be kept as stable by international rating agencies. On the macroeconomic impact, we believe it is too early to indicate that the negative effects from Covid-19 on the global and the domestic economy would be comparable to the 2002-2003 SARS outbreak, see Fig 3. However, we believe the RM20bn fiscal stimulus package, if properly implemented, will help to strengthen the country’s aggregate domestic demand, especially private consumption growth. The economic stimulus package has included measures to assist certain sectors and industries affected by Covid-19, especially hotels, airlines, travel companies and the tourism-dependent retail industry.

Source: Affin Hwang Research - 28 Feb 2020