Singapore: Riding out the cyclical downturn; Malaysia: Budget 2020 yields little by way of surprises

Highlights from the CAA Weekly Table

What has changed?

  • Global economy: The partial deal between the US and China is of such limited scope that it will do little to remove the overhang of uncertainty. Business sentiment and thus capital spending will remain moribund, which will constrain global trade flows.
  • Asian economies: Exports continue to contract across the region, with little sign of a recovery. Even in Malaysia which had remained resilient, industrial production is now weakening as exports falter. Despite the Bank of Thailand’s concerns over economic growth, a rate cut in 4Q19 is not likely as policymakers remain cautious, preferring to conserve policy space to act should growth weaken more severely.
  • Asian political risks: Despite the upbeat press releases, the XiModi summit does little to resolve longstanding grievances that hang over the Sino-Indian bilateral relationship. In Indonesia, optimism over the reform agenda is petering out as the President remains reluctant to acquiesce to protestors’ demands for him to reverse a controversial revision to the anti-corruption law. Meanwhile, some headway over the contentious CITIRA tax bill portends well for the tax package in 2020 in the Philippines but confirmation of the President’s ill-health could derail the cherished tax reform agenda.

Singapore: Riding out the cyclical downturn

  • The Singapore economy essentially stagnated for a second quarter in succession. Looking ahead, the composition of growth will shift toward services as manufacturing continues to struggle and construction appears likely to underperform expectations.
  • Possible downside risks to the outlook could emerge if small-and-medium enterprises (SMEs), the economy’s soft underbelly, lose their footing. Policy settings should thus be configured to lean heavily on fiscal rather than monetary or macroprudential loosening, and be enacted with a surgical focus to backstop the vulnerable SME sector.

Malaysia: Budget 2020 yields little by way of surprises

  • First, the fiscal stance of Budget 2020 is contractionary, as the fiscal deficit held steady in absolute terms whereas the authorities expect growth to edge up marginally in 2020.
  • Second, the authorities are persisting with fiscal consolidation efforts to build on gains from the previous budget. Revenue pressures are salient, as the authorities did not unveil any new taxes, save for the introduction of a new income tax band for the ultra-wealthy.
  • Third, budget assumptions are reasonable, bolstering the government’s credibility. Growth will remain robust, while oil prices – a key determinant of petroleum-related revenues accounting for a fifth of total revenues – are unlikely to surprise on the upside.
  • Fourth, the quality of spending edged up slightly as the authorities step up social and development spending to bridge the rural-urban divide and assuage fears of the prohibitively high cost of living by way of toll reductions and a targeted fuel subsidy scheme.
  • Last, several measures were rolled out to placate the increasingly restive bumiputra community. Incentives for smallholders toiling in the commodity-related sectors, including palm oil, rubber and padi, also featured in Budget 2020.

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