Economists back govt's proposed comprehensive economic stimulus plan

KUALA LUMPUR (March 24): Economists have backed the government's plan to announce a comprehensive Economic Stimulus Package on March 30 despite fiscal constraints, saying a larger package is necessary to maintain macroeconomic stability amid the Covid-19 situation and movement control order (MCO).

Furthermore, Prime Minister Tan Sri Muhyiddin Yassin has also noted that the National Security Council will decide on the same day whether the two-week MCO, which ends on March 31, will be extended.

Juwai IQI chief economist Shan Saeed said an expansionary fiscal policy and a monetary policy adjustment have become an important or integral part of economic growth strategy under the stimulus package in these turbulent times.

"The amalgamation of these policies can help spur growth for the economy in the short term and long run," he toldBernama.

Shan expected the government to continue to support industries that have strong economic and macro impact, namely small and medium enterprises (SMEs), as well as the service sector such as logistics, technology and manufacturing.

Overall, he said the government will continue to adopt growth-driven and people-centric economic strategy to stimulate growth.

"The most important variable for Malaysia is that she maintains macroeconomic stability which brings economic confidence and growth. Right now, macroeconomic stability, that are political, economic, social and infrastructure are very much intact," he said.

Apart from the economic stimulus package, economists believed the government may provide some guidance on the need for possible recalibration of the 2020 Budget.

He said there is also the likelihood of resetting the country’s fiscal deficit target to above the initial target of 3.4% of gross domestic product (GDP) for 2020, after taking into account additional fiscal spending and lower global oil price assumption.

"We believe the government will likely roll out a larger and more comprehensive fiscal stimulus package," according to economists at Affin Hwang Investment Bank Bhd in a research note.

They noted that household consumption continues to be the prime beneficiary from the stimulus measures, besides businesses, especially SMEs in those sectors and industries affected by Covid-19.

The stimulus package will also include direct spending by the government on development and infrastructure expenditure.

"All the stimulus packages so far, if implemented effectively, will support the country’s economic growth," the economists said.

Currently, the investment bank has maintained its real GDP growth forecast of around 3.3% for 2020, which is at the lower end of the official forecast of between 3.2% and 4.2%, from 4.3% in 2019, due to weak growth in domestic demand and exports.

However, there is increasing downside risks to its growth forecast, which the prolonged Covid-19 outbreak will not only weigh on tourism-related sectors but also across all other sectors of the economy, especially the disruptions within the global supply chain in the manufacturing sector.

The research house said the Covid-19 impacts might drag and weigh down country’s real GDP growth by 2.5-3.0 percentage points in 2020, if the outbreak were to last until the end of June.

"This indicates that Malaysia’s GDP growth may only be expanding by around 0.3% -0.8% for 2020 as a whole, from our current base case assumption of 3.3%, if the Covid-19 crisis drags on.

"As such, it is necessary for the government to take further and possibly larger fiscal stimulus measures to safeguard and support the economy from slowing down sharply," it explained.

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