HSBC sees budget deficit narrowing to 3.5% this year

In The Edge Financial Daily Today 2014

Written by Bernama 

Friday, 04 April 2014 14:00

KUALA LUMPUR: The hike in subsidised fuel prices last September, coupled with further fiscal consolidation this year, should result in Malaysia’s budget deficit narrowing further to 3.5% of gross domestic product (GDP) from 3.9% registered in 2013, said HSBC Global Research.

“As evident by cuts to sugar, fuel and electricity subsidies over the past few months and plans to restructure the revenue base through a 6% goods and services tax (GST) in April 2015, the government remains committed to fiscal consolidation,” the research firm said in a statement yesterday.

HSBC Global Research is maintaining its GDP growth forecast for 2014 and 2015 at 5.2% and 5%, respectively, saying the pick-up in growth will be boosted by positive net exports.

“This year’s expansion may appear to be faster than 2013’s 4.7%, but sequential growth each quarter should actually be slower.

“We expect average quarterly growth of 0.9% over 2014 versus a 1.2% average for 2013 and a trend pace of 1.1%,” it added.

HSBC Global Research also said the recovery cycle in Malaysia’s exports would be underpinned by higher shipments for both manufactured products and commodities.

Growth, however, would likely be modest, given HSBC’s view for modest recovery in the United States and Europe, as well as, stable growth in China.

But, it will likely still outstrip the rise in imports, where gains should be tempered by a noticeable weakening in domestic demand, it added.

Domestic slowdown would likely reflect the impact government fiscal consolidation efforts have on both public and consumer expenditure.

On inflation, HSBC expected it to average around 3.2% this year, assuming there are no changes to fuel prices, and this was in line with Bank Negara Malaysia’s forecast of between 3% and 4%. — Bernama

This article first appeared in The Edge Financial Daily, on April 4, 2014.