Fitch research unit predicts Malaysia’s economy to grow 4.5pc next year

KUALA LUMPUR, Nov 18 — Malaysia’s economic growth is likely to dip to 4.5 per cent for 2020 due to the prolonged effects of a slow global economy, according to a forecast by Fitch Solutions Macro Research (FSMR).

The Fitch Group unit said the 2019 expectation for Malaysia’s economy is at 4.6 per cent.

It added that for next year, private spending — which had been the main economic driver — will likely decrease as consumers feel the pinch of fuel subsidies being rolled back as announced by the Pakatan Harapan (PH) government in its Budget 2020.

It noted the government’s tax policy change, replacing the 6 per cent goods and services tax (GST) — seen as a fairer tax due to the broad consumption base that adds more money to the Treasury — with the “less onerous” sales and services tax (SST).

FSMR also noted that in 2020, Malaysians will also have to do without tax refunds as the PH government only gave out a one-off deduction worth a total of RM37 billion this year.

The research firm said the slowing global growth from the ongoing trade war between the US and China — the world’s two biggest economies — is likely to intensify next year and consequently reduce Malaysian exports too, but added that the negative impact will be cushioned by fewer imports.

The research firm said the government’s initiatives to spur foreign direct investments will have a stabilising effect next year with more China-related businesses heading to Malaysia.

“This is due to warming relations with China after the renegotiation of the East Coast Rail Link (ECRL), as well as plans to set up a ‘special channel’ to facilitate more investment from China. ”Additionally, continued uncertainty in US-China trade relations despite the increasing likelihood of a ‘Phase-One’ deal is likely to continue accelerating the trend of companies moving away from China to alternative locations in South-east Asia,” FSMR said.

But it predicted that the relocation of more global businesses from China to Malaysia will only begin to show either late next year or early in 2021, which meant “that exports in 2020 are likely to remain weak”.

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