Malaysia has room to pursue expansionary fiscal policy, says economist

06 Aug 2019 / 20:32 H.

PETALING JAYA: Malaysia has the room to cut interest rates a bit more or pursue a more expansionary fiscal policy amid global trade disruptions, according to Asean+3 Macroeconomic Research Office (AMRO) chief economist Dr Khor Hoe Ee.

Speaking at an economic outlook briefing today, he said macroeconomic policies will be the appropriate responses if there is a further slowdown in growth for the region due to external headwinds and other risks.

CIMB group chief economist Dr Donald Hanna opined that another Overnight Policy Rate cut is likely within the next three to six months after the 25-basis-point reduction in May.

“We will get another cut, partly because the world’s economy has worsened on the back of the likely increase in tariffs come September by the US, which is an open blow for an open economy like Malaysia.”

Khor noted that the escalation of global trade tensions stemming from additional tariffs slapped against China by the US remains the biggest threat to Malaysia and the Asean+3 region.

Last Thursday, US President Donald Trump announced that he will impose tariffs on another US$300 billion (RM1.26 trillion) worth of Chinese goods from Sept 1.

However, Khor said AMRO has main-tained Malaysia’s economic growth forecast of 4.5% for the year.

“Malaysia’s growth has held up quite well, despite the bad hits it has taken from the trade war particularly with the negative exports growth over the last several months as well as the abolition of the Goods and Services Tax.”

For Asean+3, Khor foresees a lower growth of 4.9% against the previous projection of 5.1%. In a worst-case scenario, growth may moderate to 4.7%.

Apart from the trade tensions between the world’s two largest economies, Khor pointed out that there is also an increased likelihood of an escalation of geopolitical risks in the Middle East in the next two to five years. “This would likely increase the price of oil, of which the Asean region is a net consumer,” he said.

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