Highlights:

  1. Standard & Poor´s upbeat on Malaysia’s prospects
  2. MITI to improve investment incentives
  3. Government to reduce direct equity ownership in companies
  4. Business sentiments dip slightly in Q4 2018
  5. IMF says trade war escalation will hit China harder than the US

Standard & Poor´s upbeat on Malaysia’s prospects
Standard & Poor’s Rating Services is upbeat on Malaysia’s prospects and a rating upgrade is possible if the country can improve total revenue to gross domestic product (GDP) ratio. Tan Kim Eng Senior Director of Sovereign and International Public Finance Ratings for Asia Pacific suggested that the government improve its total revenue as a percentage of GDP as the current revenue base was relatively small. “However, we do see a lot more room for improvement in terms of the country’s revenue, by focusing more on nation building initiatives, education reforms and infrastructure building, and still not threaten the stability of the country’s fiscal balance sheet. “We are also quite upbeat of Malaysia’s prospects and forecast, going forward,” said Tan, who spoke during a panel discussion on the “New Malaysia: Resiliency of the Economy and Credit Profile” held in conjunction with an investors conference themed, “Malaysia: A New Dawn” in Kuala Lumpur.

MITI to improve investment incentives
Speaking at the same conference, Minister of International Trade and Industry (MITI) Datuk Darell Leiking said the government was looking to improve investment incentives that would give win-win results for both the investors and nation. He said the government was expected to announce these incentives in the tabling of the upcoming Budget 2019 on 2 November. “We must review some of the investment incentives but it must be affordable for us and good for the investors,” Asked on key areas for new investments in the country, Datuk Darell said Malaysia should be looking at the digital economy and there are many local talent with business ideas to boost this sector. “We are seeing Malaysians with businesses overseas but they are coming back to serve the nation. So while maintaining our normal industries, we must also go into the digital economy,” he added.

Government to reduce direct equity ownership in companies
Finance Minister Lim Guan Eng said the government will reduce its direct participation in the equity ownership in companies and let the private sector take the lead in the economy. He said the new government believed in the dictum that “the business of the government is not to be in business”  and as such, the coming years would see a slew of programmes designed in part to unleash the full potential of the private sector. “We will be unleashing the power of the private sector and reduce the crowding out effect caused by the government. “In addition, we will also be able to gradually realise the value of government-owned assets and utilise these proceeds to pare down our debt obligations.,” he said.  He said the government would play its role as the single largest buyer in the country to promote efficiency and competitiveness of the private sector. In the meantime, he said that there would be no cancellation of Public-Private Partnership (PPP) projects and these would continue but under a different format and mechanism.

Business sentiments dip slightly in Q4 2018
Business sentiments among Malaysian companies has dipped slightly in Q4 2018. According to Dun & Bradstreet (D&B) Malaysia’s Business Optimism Index (BOI) study, overall BOI slipped from +13.17 percentage points in Q3 2018 to +12.99 percentage points in Q4 2018. On a year-on-year (y-o-y) basis, BOI jumped significantly from +5.52 percentage points in Q4 2017 to +12.99 percentage points in Q4 2018. For Q4 2018, 4 of six indicators have climbed upwards on a quarter-on-quarter (q-o-q) basis. On a year-on-year (y-o-y) basis, 5 of six indicators have risen upwards for Q4 2018. The manufacturing and services sectors have emerged as the most upbeat sector with all six indicators in positive territory while the construction and transportation sectors are least optimistic. The D&B Malaysia Index (BOI) is a measure of business confidence in the economy. Released quarterly, it is based on a business sentiment survey that is designed to capture business expectations and is one of the most effective ways to track how the business community perceives the business environment, and where they think it is moving.

Trade war escalation will hit China harder than the US, IMF says
The International Monetary Fund said further escalation of the trade war between the US and China would take a major toll on economic growth in both countries next year, with China the bigger casualty. The world economy would also suffer, the IMF said. Based on the trade tariffs already in place, the organisation revised down its estimates of world growth this year and next by 0.2 of a percentage point to a still healthy 3.7 per cent. Assuming the US slaps tariffs on all Chinese imports, as US President Donald Trump has threatened to do, the effect on consumer and business confidence combined with the negative financial market reaction would probably cut the GDP of the United States by more than 0.9 per cent in 2019, while Chinese economic output would be 1.6 per cent lower than it otherwise would be, the IMF said. The institution warned that such economic modelling is inherently imprecise and the effect of a full-blown trade war could be less or even more severe than this calculation. A full-blown trade war assumes that the US will impose tariffs on a further US$267 billion of Chinese goods – covering nearly all its Chinese imports. It also assumes that the US will impose tariffs on all of its automotive imports, a worst-case scenario that would affect many countries. The US has imposed a 25 per cent tariff on US$50 billion worth of Chinese imports, and in September added a 10 per cent tariff on an additional US$200 billion of Chinese products, with the tariff rate set to rise to 25 per cent on January 1 if China does not make trade concessions.