Persistent economic headwinds major concerns in 1H2020

Current situation have led to risks aversion, says Bank Negara. File photo: Bernama

KUALA LUMPUR: Persistent economic headwinds, internal and external, will likely continue to be major concerns for Malaysia in the first half of this year, affecting consumer sentiment and business confidence.

In a note, AllianceDBS Research said these economic headwinds include the Covid-19 outbreak and the recent political turmoil in the country.

“Given the myriad of economic challenges arising from internal and external uncertainties, we believe there will be more downside risks to the economy which could prompt more monetary easing by Bank Negara Malaysia (BNM) in the near-term.

“We believe consumer sentiment and business confidence will remain weak following the recent domestic political turmoil, negatively impacting private spending which has long been the main driver for growth in Malaysia,” the research firm said.

AllianceDBS Research said balancing the needs between fiscal prudence and stimulus spending might be a herculean task for the new government given Malaysia’s continuous fiscal deficit and elevated government debt.

On Sunday, Tan Sri Muhyiddin Yassin took his oath of office as Malaysia’s eighth Prime Minister before Yang di-Pertuan Agong, Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah, at Istana Negara.

“The appointment of new heads of government agencies is expected in the next few months after a new government cabinet is formed. This could lead to major changes in government policies and reform initiatives that were implemented under the previous Pakatan Harapan government,” AllianceDBS Research added.

Meanwhile, OANDA senior market analyst for Asia-Pacific, Jeffrey Halley said Malaysia’s growth story would continue to be hindered by the domestic political uncertainty and global uncertainty in the form of the Covid-19 outbreak.

“Until both of those measures occur, it is hard to construct a bullish case for above-trend growth,” he told Bernama.

Halley said another round of overnight policy rate (OPR) cut today was within expectations, as the political turmoil engulfing Kuala Lumpur would force Bank Negara’s hand.

BNM’s Monetary Policy Committee at its meeting today decided to reduce the OPR by 25 basis points to 2.50 per cent.

The ceiling and floor rates of the corridor of the OPR are correspondingly reduced to 2.75 per cent and 2.25 per cent, respectively.

According to the central bank, the global economic conditions have weakened in the recent period, with the ongoing Covid-19 outbreak disrupting production and travel activity, especially within the region.

“This has also led to greater risk aversion, resulting in tighter financial conditions and a resurgence in financial market volatility. Downside risks to the global growth outlook have increased, particularly in the near term.

“However, a number of countries have implemented policy responses. With further anticipated policy measures, these actions are expected to mitigate the economic impact of Covid-19,” said BNM in a statement.  – Bernama