KUALA LUMPUR: Malaysia's economic growth is going to shift to a lower gear and come in at 4.6 per cent this year, lower than the likely 6.9 per cent in 2022, said OCBC Bank chief economist Selena Ling.
This will provide Malaysia's new government with a more challenging landscape.
Given the need to bolster popular support, the government might have little choice but to pursue a relatively loose fiscal policy, Ling added.
"On the expenditure front, we are likely to see a suite of budget measures aimed at relieving the population of cost-of-living upticks, including via cash handouts. The prospect of subsidy cuts for fuel and food purchases looks to be dim as well, at least in the near term.
"On the revenue side, the classic policy choice of whether to reinstate Goods and Services Tax (GST) will come to the fore too, as the need to lessen the dependence on oil-related revenues remains perennial.
"Various Pakatan Harapan officials had been rather adamant about not adopting GST before, but the fiscal reality when it gets back into power might change things," she said today.
Ling said on the monetary policy side, concerns about inflation were likely to persist going into 2023, even if on a year-on-year basis the headline numbers might not be as bad.
On a relative basis, she said the likelihood of subsidy cuts might have been reduced with the new government in power, but it would remain one of the key risks that Bank Negara Malaysia would have to countenance.
"Hence we continue to see the risk that the central bank may have more compulsion for rate hikes.
"Set against the relatively strong economic backdrop for the past few quarters, we see it tweaking rate up to 3.25 per cent in the first quarter, rather than 3.0 per cent as per before.
"In other words, it is thus likely to hike by 25 basis points each in the January and March 2023 meetings.
"We see Bank Negara on pause thereafter, however. While the near-term growth looks rosy enough, Malaysia is unlikely to be unscathed in any sharp global slowdown that may materialise," she added.
Source: https://www.nst.com.my/business/2023/01/870679/malaysias-slower-economy-provide-government-more-challenging-landscape-ocbc