SERC: More structural reforms needed

Lee: The government has a projected fiscal reduction target and is slowly bringing it down

Lee: The government has a projected fiscal reduction target and is slowly bringing it down

KUALA LUMPUR: A synchronised global slowdown is imminent – indicating that the economic growth in Malaysia will be equally challenging.

The Socio-Economic Research Centre (SERC) said with the global economy looking to moderate further coupled with weaker exports, the Malaysian economy is expected to grow at a slower pace of 4.7%.

Despite this, SERC executive director Lee Heng Guie is of the view that the country’s economic conditions are stable enough to implement more structural reforms to empower economic growth.

“The government needs to show strong political will to implement the reforms which are necessary to sustain the economy to make the country more competitive in a highly changeable global environment.

“The condition is quite stable now, it’s not a recession, just a slowdown but not too slow. We can push a little (for reforms),” he told a media briefing here at SERC’s Quarterly economy tracker from October to December last year and the outlook for 2019.

He said 2019 would be a year of certainty in terms of execution and implementation as the government seeks to implement Budget 2019.

Some macroeconomic reforms have already taken place under the previous administration, so there might be a need to fine tune it.

“The focus this year or next year is very much fiscal reform because of the debt liability and the need to convince investors, particularly the rating agencies or investors that the government is determined to further strengthen its financial position.

“The government has a projected fiscal reduction target and is slowly bringing it down. That’s important because it needs to have a clean and healthy balance sheet before it can support the economy in terms of selective types of fiscal spending or giving incentives,” he said, adding that the private sector would also have more confidence on the country’s future growth.

The government had forecast its fiscal deficit to be 3.4% this year, down from 3.7% last year. It also expected the levels to be at 3% in 2020, and under 2.8% in 2021.

While external factors are beyond the government’s control, Lee said it should start anticipating the forthcoming challenges which could impact the economy.

Among uncertainties were the lingering concerns over the trade tension between United States and China where an outcome would be known by March 2, the US Federal Reserve’s future rate hikes, slowing global growth, volatility in global financial markets, swings in crude oil prices and geopolitical risks with elections coming up in Thailand, Indonesia and maybe Singapore.

“What the government should do is get itself prepared, minimise the inefficiencies and ensure that whatever spending there is, disburse it fully.

“Make sure there are no delays, then activities will continue. On the policy side, if there is a bigger slowdown, the government has to determine if it has the fiscal space or some money to readjust to do some quick projects to create activity and to make sure the confidence is there,” said Lee.

Lee also said domestic demand would remain the dominant driver of economic growth in 2018 at the rate of 92.3% of the total gross domestic product (GDP), 72.3% of which is from the private sector and 20% from the public sector. Slower consumer spending is also expected

Exports will be affected by the slowing global demand for electrical and electronic products, weaker commodity, crude oil prices and the technical base effect of high exports averaging RM83.3bil per month last year.

SERC expected exports to grow 3.3% this year, as compared with its estimation of 6.9% last year and 18.8% in 2017.

It also estimated headline inflation to increase to 1.5% to 2% this year from an estimated 0.9% last year.

SERC also expected Bank Negara’s overnight policy rate to be maintained at 3.25% this year and what would prompt a decline in interest rate is when real GDP growth slips to around 4%, even at the expense of exerting downward pressure on the ringgit.

SERC added that the ringgit would strengthen in the second half of this year. It will remain weak in most of the first half before gathering strength towards the fourth quarter. Its year-end target for the ringgit is RM3.95 to RM4 against the greenback.

Economy , Economic outlook , serc , lee heng guie