MALAYSIA'S government will add RM60 billion (US$16.27 billion) in new spending over 2009 and 2010, Deputy Prime Minister Datuk Seri Najib Tun Razak said in Parliament today.
This is much more than the RM30 billion many economists expected.
Najib said he is confident the deficit can be financed from domestic sources
The government slashed 2009 GDP forecast, projecting a range between a contraction of 1 per cent and a 1 per cent expansion, down from forecast growth of 3.5 per cent
LEE HENG GUIE, ECONOMIST, CIMB, KUALA LUMPUR: “Of course now the main priority is to cushion the economy from a severe downturn. This (fiscal deficit) is a secondary concern.
“What we expect is when the economy recovers the government should put in a fiscal consolidation framework to slowly bring the fiscal deficit down.
“Most of the data that has come out year to date, both on the Malaysia side as well as regionally, seems to suggest an expected contraction in the first half of this year will likely be deeper.”
NIZAM IDRIS, CURRENCY STRATEGIST, UBS, SINGAPORE: “This was significant stimulus compared with what the market was expecting. It will have some impact in terms of supporting GDP. But having said that the ringgit is heavily influenced by what is happening in the rest of the region.
“The stimulus will put a floor to growth numbers but I think the currency will weaken given regional fundamentals.
“The (Korean) won has weakened by 35 per cent since Lehman.
Asean currencies have only weakened by 5 per cent since then.
We’ll likely see Korean exports doing better than Asean exports pretty soon, so when things improve, we’ll likely see investment go to Korea because the won has weakened so much.”
ALVIN LIEW, ECONOMIST, STANDARD CHARTERED BANK, SINGAPORE: “The GDP forecast is an expected outcome given the global conditions and given how plugged in Malaysia is to world trade.
The (expectation) the economy could contract in 2009 is fairly realistic.
“We will have to see how the global economny shapes up in the rest of the year before deciding whether this number has to be revised downwards or not.
“The RM60 billion spending number looks big on headline but we have to look at the contents.”
IRVIN SEAH, ECONOMIST, DBS BANK, SINGAPORE: “The GDP forecast still seems to be on the optimistic side. I am looking at minus 1.2 per cent for the year.
“The RM60 billion spending spread over two years is a substantial amount but even with the best plans on the table, much will depend on the effective implementation of those measures.
“Usually there is a lag in implementation and so by the time you see the effect kicking in, the economy could already be in a sharper than expected level of contraction. They really need to start implementing the policies as soon as possible in order to derive the expected benefits.
“Malaysia still has a very healthy current account surplus and so they should be able to fund these (spending plans) easily. The crunch will come next year because oil prices are low and oil revenue collections will be significantly lower.
THIO CHIN LOO, CURRENCY STRATEGIST, BNP PARIBAS, SINGAPORE: “The huge stimulus of RM60 billion is equivalent to 9 per cent of GDP.
“It will widen the budget deficit to 7.6 per cent of GDP in 2009.
“The announcement was timed with a correction in the dollar already under way. Hence, it gave the ringgit a further lift.
“Dollar/ringgit has cracked 3.7 and is now finding support at 3.6750/3.6650. A crack of the latter level, a trendline support, opens a deeper correction to 3.6564.”
MARKET REACTION:
Malaysian ringgit interest rate swaps rise, with 5-year swap at 3.26 per cent compared with Monday’s 3.1 per cent. - Reuters
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