budget deficit

 
 

Worst seems over for Malaysian economy: MRR Consulting managing director

PETALING JAYA: It appears that the worst is over for the Malaysian economy, accord-ing to MRR Consulting Sdn Bhd managing partner Ooi Kok Hwa – at least up until the US presidential elections which are slated to take place in November next year.

In a recent interview with SunBiz, Ooi said capital market behaviour tends to trend at least six to nine months in advance; thus, the negative impact from the volatile global climate has already been factored into the local market’s performance.

“Of course, the recovery will not come immediately, but will be seen gradually. The FBM KLCI has already factored in all bad news, and I think the worst is over, especially when it comes to the US-China trade war” he said.

Ooi believes the KLCI could close above 1,700 points at the end of the year, and could potentially go up to 1,900-2,000 points next year. Last Friday, the key index closed 3.35 points lower at 1,571.15 points.

There have been a number of events that have affected the global economy this year, but the one that has arguably had the biggest effect on global markets has been the protracted trade war between the United States and China.

So far, a total of US$550 billion (RM2.3 trillion) in tariffs have been implemented on Chinese goods by the US, and a total of US$185 billion (RM773.3 billion) has been levied on US goods by China.

However, there was a positive development last week when US and Chinese negotiators announced they had worked out a “Phase 1 deal” in which China will reportedly purchase US$40-50 billion in US agricultural products annually, strengthen intellectual property provisions, and issue new guidelines on how it manages its currency.

Ooi said he believes there could be a partial trade deal worked out by the end of the year.

“I think both sides are quite sincere in reaching a deal, and I think Donald Trump is savvy in the sense that he knows what he needs to do to get re-elected, and that means helping the US economy get back on track,” he said, referring to the US president.

It should be noted that a potential risk of recession remains for the US economy, Ooi said, and the US Federal Reserve could possibly make seven more interest rate cuts by July 2020.

“If the economy doesn’t improve by then, there could be a potential quanti-tative easing exercise carried out, which will be good for the stock market.”

In addition, Ooi said, Budget 2020 will contribute to the improvement of Malaysia’s economy.

“The Finance Minister said that our GDP (gross domestic product) growth will be 4.8% next year, which is a positive indicator. I actually expect it to be higher, because the budget is an expansionary one and, coupled with the higher minimum wage implementation, I think consumer spending will increase,” Ooi said.

“The fact that the budget deficit is coming down is positive. Yes, next year’s collection is lower, but expenditure is also lower compared with this year,” he added.

According to the 2020 Economic Report, GDP growth is projected to improve marginally to 4.8% in 2020 from 4.7% in 2019. The government has set a deficit target of 3.2% to GDP for next year, down from the current deficit of 3.7%.

On the outlook for the ringgit, Ooi said he expects its exchange rate to remain at current levels.

“The ringgit moves together with the renminbi, so as long as the US does not impose any new tariffs, I don’t think the renminbi will depreciate and therefore the ringgit should remain at the levels we are seeing now.

“However, in the second half of next year, should the quantitative easing scenario occur, then of course the ringgit will appreciate against the US dollar at potentially below RM4 against the dollar,”


Worst seems over for Malaysian economy: MRR Consulting managing director

PETALING JAYA: It appears that the worst is over for the Malaysian economy, accord-ing to MRR Consulting Sdn Bhd managing partner Ooi Kok Hwa – at least up until the US presidential elections which are slated to take place in November next year.

In a recent interview with SunBiz, Ooi said capital market behaviour tends to trend at least six to nine months in advance; thus, the negative impact from the volatile global climate has already been factored into the local market’s performance.

“Of course, the recovery will not come immediately, but will be seen gradually. The FBM KLCI has already factored in all bad news, and I think the worst is over, especially when it comes to the US-China trade war” he said.

Ooi believes the KLCI could close above 1,700 points at the end of the year, and could potentially go up to 1,900-2,000 points next year. Last Friday, the key index closed 3.35 points lower at 1,571.15 points.

There have been a number of events that have affected the global economy this year, but the one that has arguably had the biggest effect on global markets has been the protracted trade war between the United States and China.

So far, a total of US$550 billion (RM2.3 trillion) in tariffs have been implemented on Chinese goods by the US, and a total of US$185 billion (RM773.3 billion) has been levied on US goods by China.

However, there was a positive development last week when US and Chinese negotiators announced they had worked out a “Phase 1 deal” in which China will reportedly purchase US$40-50 billion in US agricultural products annually, strengthen intellectual property provisions, and issue new guidelines on how it manages its currency.

Ooi said he believes there could be a partial trade deal worked out by the end of the year.

“I think both sides are quite sincere in reaching a deal, and I think Donald Trump is savvy in the sense that he knows what he needs to do to get re-elected, and that means helping the US economy get back on track,” he said, referring to the US president.

It should be noted that a potential risk of recession remains for the US economy, Ooi said, and the US Federal Reserve could possibly make seven more interest rate cuts by July 2020.

“If the economy doesn’t improve by then, there could be a potential quanti-tative easing exercise carried out, which will be good for the stock market.”

In addition, Ooi said, Budget 2020 will contribute to the improvement of Malaysia’s economy.

“The Finance Minister said that our GDP (gross domestic product) growth will be 4.8% next year, which is a positive indicator. I actually expect it to be higher, because the budget is an expansionary one and, coupled with the higher minimum wage implementation, I think consumer spending will increase,” Ooi said.

“The fact that the budget deficit is coming down is positive. Yes, next year’s collection is lower, but expenditure is also lower compared with this year,” he added.

According to the 2020 Economic Report, GDP growth is projected to improve marginally to 4.8% in 2020 from 4.7% in 2019. The government has set a deficit target of 3.2% to GDP for next year, down from the current deficit of 3.7%.

On the outlook for the ringgit, Ooi said he expects its exchange rate to remain at current levels.

“The ringgit moves together with the renminbi, so as long as the US does not impose any new tariffs, I don’t think the renminbi will depreciate and therefore the ringgit should remain at the levels we are seeing now.

“However, in the second half of next year, should the quantitative easing scenario occur, then of course the ringgit will appreciate against the US dollar at potentially below RM4 against the dollar,”


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Reintroduction of GST can help reduce deficit

PETALING JAYA: A potential reintroduction of the previously scrapped goods and services tax (GST) could help in narrowing the budget deficit going forward, but it will fall on the government to prove that the system will be implemented properly.

Sunway University’s Professor of Economics Dr Yeah Kim Leng said that while the implementation would likely not take place in the immediate future, the government would have to be prepared to face the potential political backlash from the move.

“Before the general election, most economists were in favour of retaining the GST, but we had also recommended lowering the rate to about 3-4%. Now, however, that is water under the bridge, so the government should look at how to strengthen the sales and service tax (SST).

“They should also do a thorough review and address the past weaknesses of the GST system, and present it to the public to garner acceptance, given that one of the key issues in the past election was the removal of the GST,” he told SunBiz.

As for addressing the shortfall in revenue, Yeah said it could easily be met by the current SST regime. However if over the medium term, the government could show the benefits of returning to GST, then it could be useful in addressing the issue.

“I think the public will be more accepting of a broad-based system if the government shows it can raise taxes and spend efficiently and strengthen public finance administration. Once the government has proved itself, then we can look at widening the revenues,” he said.

The budget deficit for 2020 is estimated to be 3.2% of gross domestic product (GDP), a slight improvement from an estimated 3.4% of GDP in 2019, according to a report by the Socio-Economic Research Centre.

William Capital Plt chief investment officer William Ng also said the GST would technically help the government get more revenue, as it is a broad-based tax and therefore almost everyone would be subject to it.

“Objectively speaking, having the GST would mean no leakages and the government would not have losses on tax collection. However, it would really depend on who is managing the scheme and what tax rate is employed.

“I think 6% was the ideal rate, but perhaps it could start at 4% and then gradually increase so that people will not be impacted as greatly,” he said.

The government expects to collect RM22 billion in revenue from the SST this year. As of June 30, it had collected RM13.3 billion, based on data from Bank Negara Malaysia. In contrast, the GST collected was RM20.24 billion from January to May 31, 2018.

To recap, Prime Minister Tun Dr Mahathir Mohamad was reported as saying at an event last week that the government would look at the reintroduction of the GST if the people want it back.

However, last Friday, Finance Minister Lim Guan Eng said even if the government got incontrovertible evidence from the people, the decision must be made by the Pakatan Harapan Presidential Council.

“Not me alone to decide. Until that is made, we have to respect the mandate and will of the people when they voted for PH, which one of our promises was to abolish GST,” he was quoted as saying.

Lim said abolishing GST had its impact in managing inflation and cost of living with Malaysia enjoying one of the lowest inflation rate in the world at 1.5%.

On Tuesday, the Malaysian Institute of Economic Research suggested in its Budget 2020 wish list that the GST be brought back, saying it was more effective and fairer than the SST.

The GST of 6% was implemented in 2015 under the previous administration, but was scrapped last year following Pakatan Harapan’s victory in the 14th general election.

Separately, Yeah said one of the key issues of note in the upcoming Budget announcement would be the govern-ment’s spending on the low-income group.

“The government should focus more skills upgrading and giving them more entrepreneurial and other income genera-ting opportunities. Those programmes will be important because addressing the cost of living is an immediate term concern, but in the longer term, you need to raise the income level.”


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