Cancellation of ECRL was necessary, says economist

CIMB Equities Research remains cautious on the construction sector despite possible revival of the East Coast Rail Line (ECRL), albeit downsized,

KUALA LUMPUR: The cancellation of the East Coast Rail Link (ECRL) project was a necessary move as Malaysia “cannot afford it” at the moment, said independent macro analyst Prof Dr Hoo Ke Ping.

“I wouldn’t say that it is a bad investment, but the time is not right.

“Our financial position does not allow for the project at this time - it is just not justifiable economically,” he said.

He noted that some other countries that had entered deals with China for the development of mega projects, such as Pakistan and Sri Lanka, had suffered the consequences as they could not afford the projects.

While he is positive on the decision to cancel the projects, Dr Hoo said the country’s GDP growth would be impacted by the move in the near term.

He forecasts that Malaysia will go into a technical recession due to anticipated negative growth during the current and upcoming quarter.

“The cancellation of these projects will impact growth - in fact, growth has already been impacted since the ERCL was suspended and other mega projects were cancelled in the past months,” he said, noting that the construction sector, among others, were already suffering the impact.

UOB Malaysia economist Julia Goh does not expect a significant impact on the economy.

“In terms of impact on the economy, the economic multiplier effect from ECRL is deemed to be low given that the import content is high with low utilisation of domestic resources.

As such, the first order effect on the overall economy should not be significant,” she said.