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Corporate

OPINION: Need for Government to up spending to support growth

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Posted Date: August 05, 2019

Strong private investment typically leads to higher productivity and profits, bigger pay checks and a better living standard over the long run. Over the short run, it helps power growth. In Malaysia, private investment has increasingly become the key to continued economic growth as external uncertainties remain elevated.

Private investment growth has, however, slowed significantly. In 1Q2019, it came in at just 0.4% y-o-y, significantly lower than the 2018 high of 5.8% (4Q). Even more disconcerting is that in 1Q2017, private investment had recorded a staggering growth of 12.3%. It does not help that public investment – i.e. by both the federal government and public corporations – has fallen due to fiscal consolidation efforts. In 1Q2019, it fell a significant 13.2%.

Businesses are getting more tight-fisted with their investments, as shown in the recent VISTAGE-MIER CEO Confidence Surveys. In 2Q2019, the CEO Confidence Index fell to 90.1 from the 2018 high of 107.1 (3Q). With three consecutive quarters of falling index readings below the optimism threshold level of 100, investor sentiment is unlikely to improve anytime soon, especially given the plethora of negative geopolitical news on the external front.

It is important that the Government steps in to provide the necessary investment support to prevent growth falling below the 4.0% level if global risks continue to rise. We believe the Government will provide the necessary support. The question is to what degree, and it remains a sensitive one due to Malaysia’s fiscal health.

What about monetary policy, some might ask? It certainly has a role to play, too, and an important one. However, the role is a supporting one. Bank Negara Malaysia’s monetary policy stance, for example, is to “maintain price stability while remaining supportive of growth.”

The onus is thus on fiscal policy makers to implement spending plans to shore up the economy during slowdowns. It is the rational and sensible (Keynesian) thing to do.

Contacts:
Quah Boon Huat, +603-2717 2931/ boonhuat@marc.com.my

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