Higher risks to Malaysia's growth prospects

  • Business
  • Wednesday, 26 Feb 2020

Fitch Solutions said it will be revisiting its long-term outlook for the Malaysian economy over the coming weeks

PETALING JAYA: The downside risks to Malaysia’s long-term growth prospects are rising as a result of political uncertainty and increasing polarisation, said Fitch Solutions.

The research house said it will be revisiting its long-term outlook for the Malaysian economy over the coming weeks, given that the political instability was shaping up to be more than just a temporary issue following the 2018 general elections.

In a statement, Fitch Solutions said it sees significant increase in political risks in Malaysia, following a manoeuvre by several members of parliament to form a new government.

Malaysia, it said, now either faces the prospect of a government less representative of the racial diversity in the country, or an extended stalemate that leads to early snap elections being called.

“Our core view is for the formation of a new government to proceed, but in either case, the country is left without much needed leadership amid a slowing economy that must deal with the global outbreak of Covid-19, ” it said.

Accordingly, it revised downwards the country’s Short Term Political Risk Score to 69.8 (out of 100) from 72.5 previously, to reflect the risks to social stability, policymaking and policy continuity.

The research house has previously highlighted the importance of the promised handover, from Tun Dr Mahathir Mohamad to Datuk Seri Anwar Ibrahim, to the continued existence of Pakatan Harapan.

Whatever the outcome of the current situation, Fitch Solutions expects the economy to be weighed down further in the short term due to paralysis in government, posing downside risks to its already bearish revision of real GDP growth in 2020 to 3.7% from 4.5% previously.

It also expects a “significant delay” in fiscal measures to support the economy, given the current political situation, noting that the government was supposed to announce a stimulus package this week in response to the the Covid-19 outbreak.

“Malaysia’s situation in this regard is in stark contrast from most other Asian economies which have moved relatively quickly to announce and implement additional spending, such as China, Taiwan, Hong Kong, Singapore and Thailand, ” it said.

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