INCREASED government spending this year is vital for Malaysia to spur its economy as the private sector is likely to take a back seat in view of the global economic uncertainties brought by multiple external factors, says an analyst.

These include the global trade war, geo-political developments in the Middle East, excess supply of crude oil and, most recently, the Covid-19 outbreak, which is expected to take a serious toll on China’s economy at least in the first half of the year, said Bank Islam chief economist Mohd Afzanizam Abdul Rashid.

He said with China’s economy having become so entrenched with the global economy via the supply chain, the exogenous shock due to the virus outbreak could potentially undermine production activities in the country.

“This, in turn, would have a ripple effect for companies that rely on China’s markets for exports as well as a source of raw material such as imports from the country.

“Therefore, there is a strong case for the (Malaysian) government to craft a timely and targeted fiscal stimulus to ensure the domestic economy continues to grow at a reasonable speed and be able to offset weaknesses from abroad.”

Afzanizam said the role of the private sector has been instrumental in driving economic growth last year, when gross domestic product expanded by 4.3%.

Earlier, Bank Negara Malaysia announced Malaysia’s economy grew by 3.6% in the fourth quarter (Q4) of 2019, dragging the full-year GDP growth to 4.3%, the lowest since the 2009 financial crisis amid supply disruptions in the commodity sector.

Governor Nor Shamsiah Mohd Yunus said the full-year growth would have been higher at 4.7% without the supply disruptions in the commodity sector.

Afzanizam said the Q4 results came in below expectations based on the consensus estimate of 4.1%.

Growth mainly came from the private sector especially consumer spending, which grew 8.1%, higher than the trend growth of 7%, he said.

Private investment was also growing at a decent rate of 4.2%, he said.

However, public sector investment and net exports fell 2.2% and 9.8%.

As for 2020, Afzanizam said Bank Islam has maintained its GDP forecast of 4.3%, pending further developments in the coronavirus outbreak.

Thus far, the number of new cases seems to have peaked at 3,900 as of February 5 while new confirmed cases stood at 2,500 as of yesterday. – Bernama, February 12, 2020.