KUALA LUMPUR: The upcoming Budget 2019 should provide strong and clear policies that will help the economy ride out the current challenging time, AmBank Research said.
AmBank group chief economist and head of research Dr Anthony Dass said it will be a challenging task for the Pakatan Harapan government to fix huge fiscal finances and address the well-being of the rakyat for the national budget, which is scheduled to be presented on November 2.
Dass added that the budget was unlikely to contain short-term populist measures such as providing subsidies, grants and easy government-led financing. This was in view of the lower gross domestic product (GDP) growth envisaged in 2019, which is at 4.5 per cent from 5.0 per cent estimated this year.
“This was added with higher fiscal deficit to GDP after taking into account of the RM35 billion refund for Goods and Services Tax (GST) and income tax plus slower revenue growth and 5.0-10.0 per cent cut in expenditure,” he said in a research note today.
Dass said the country’s fiscal deficit could jump between 3.7 per cent and 4.6 per cent in 2019, which portrayed as a “one-off” scenario.
“Looking at the lBursa Malaysia sentiments, we adopt a fairly cautious outlook as compared to the fixed income market. Underpinned by slower GDP growth, the 2019 corporate earnings are projected to grow by 5.7 per cent from 2.4 per cent in 2018,” he added.
Dass said the rising fiscal deficit might open the door for foreign rating agencies to revisit the country’s current ratings.
“Thus, we have lowered our 2018 and 2019 FBM KLCI target to 1,790 and 1,890 from the previous 1,900 and 2,020 respectively, based on 18.5 times price-earnings multiples.”
AmBank Research also expects higher issuances of papers in 2019, factoring the “one-off” refund of RM35 billion for GST and income tax added with lower revenue growth following slower GDP outlook for 2019 and a reduction of total spending by 5.0-10 per cent.
“We expect the supply of papers to hover between RM126.1 billion and RM144.6 billion next year based on a fiscal deficit/GDP between 3.7 per cent and 4.9 per cent in 2019. Thus, the fixed income market is poised to stay exciting,” he said.
AmBank maintained its overnight policy rate (OPR) outlook at 3.25 per cent until the first-half of 2019, with room for a 25 basis points hike in the second-half of next year.
Dass said the possible rate hike was to address the narrowing interest rates differential with the US Federal Reserve fund rate which should reach zero in 2019 based on three rate hikes by the Fed in 2019 and another hike in 2020 bringing the normalised rate at 3.50 per cent.
ends