GE14 outcome may determine Malaysia's economic growth trajectory: Kenanga Research

PETALING JAYA: Kenanga Research said the 14th general election (GE14) may dictate the Malaysian economic growth trajectory on the back of rising support for the Opposition.

“Though our base case view is for the incumbent ruling coalition to win the general election with a simple majority and stay in power, there may still be the element of surprise given the growing support for the Opposition,” it said in a research note today.
Kenanga Research said the possibility of a change in government if Pakatan Harapan wins the election will create unprecedented major policy disruption.
“A promise to replace GST (Goods and Services Tax) with a ‘fairer’ sales and services tax and ‘people-friendly and entrepreneur-friendly’ tax as well as to review budget spending and allocation as well as key development projects could possibly bring about major uncertainties in the ability of the government to reduce its debt and budget deficit.”
Nonetheless, it does not discount the possibility that it will improve the health of the fiscal balance sheet provided there is a smooth transition to power along with improved governance and monitoring.
Kenanga Research said the political risk premium and policy risk will remain an impediment for achieving the potential growth for Malaysia, which will have an effect on consumption and investment growth.
Despite expected higher uncertainty from the second quarter onwards, the research house opined that the underlying fundamentals of the economy remain relatively intact.
“Though the house current economic growth projection appears to mimic the lower end of the latest official forecast (based on Bank Negara Malaysia’s forecast) of 5.5%-6.0%, we believe there could be some downside to our growth projection in 2018.
“This is premised on the outcome of GE14, the full impact of US Fed’s rate normalisation process, the impending trade war between the US and China, and geopolitical risks in the Middle East that may influence the oil price levels."
Its base case projection for second quarter gross domestic product growth is 5.5% after taking into account the high net exports contribution.
On the currency front, Kenanga Research foresees a more volatile ringgit biased on weakness to a range between 3.85 and 4.10 to the US dollar in the next three to six months before ending the year at 3.90. As at 5pm today, the ringgit was weaker by 0.1% at 3.9445 against the greenback.