GDP growth to quicken on pent-up demand, says Tengku Zafrul

 

The country’s economic recovery has also been aided by a boom in overseas trade, with both export and import values hitting record numbers in June.

KUALA LUMPUR: The country’s economic growth will accelerate this quarter after expanding at the fastest pace in a year, driven by private consumption as activities resume, says finance minister Tengku Zafrul Aziz.

“People are underestimating the strength of the pent-up demand,” he said in an interview with Bloomberg yesterday.

“Restaurants are packed, traffic jams have returned, the unemployment rate has fallen to below 4% and the first-half tax collections have been way above our estimate.”

The GDP expanded by 8.9% in the April-June period from a year earlier, beating the 7% median estimate in a Bloomberg survey. The economic recovery has also been aided by a boom in overseas trade, with both export and import values hitting record numbers in June.

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Bank Negara Malaysia (BNM) is projecting full-year growth to be at the upper end of its 5.3%-6.3% forecast.

The outlook will be more challenging heading into 2023 because of slowdown fear in the global economy, Zafrul said. Stumbling growth in China – its largest trading partner – and the US Federal Reserve’s aggressive monetary tightening are concerns, Tengku Zafrul said.

“There are things that are not in our control,” he said, flagging fears about an escalation in tensions between the US and China after US House Speaker Nancy Pelosi’s visit to Taiwan.

“We are hoping that the inflation concerns in the US ease and that China addresses its conservative Covid measures.”

He added that inflation pressures are expected to remain partly contained because of price caps on food items and fuel subsidies.

Recently, the government held off on raising electricity and water prices and it is expected to contribute to the growing subsidy bill for 2022, which will likely total RM80 billion, versus a budgeted RM31 billion.

“Our inflation has been under control relative to what we see in the rest of the world. But this comes at a high fiscal cost,” Tengku Zafrul said.

The government will rely on revenues from high commodity prices, robust tax collections, a one-off prosperity tax on companies, and dividends from state entities including Petronas and sovereign wealth fund Khazanah Nasional, to offset the subsidy bill, he said.

“The easiest way is to borrow more,” he said, adding there is scope to do so because the debt-to-GDP ratio of 60.4% is still below the statutory debt ceiling cap of 65%.

“But we are committed to a fiscal deficit target at 6% of GDP. Pre-pandemic, our deficit was at 3.5%. We have to get there eventually.”

Meanwhile, on targeted fuel subsidies, Tengku Zafrul said the mechanism is currently being tested at some locations.

“We are testing the mechanism for the targeted fuel subsidy system at some petrol stations. We are testing platforms, including e-wallets, and hopefully will take it to the Cabinet by the end of the year.

“It is then up to the Cabinet to decide on its implementation.”

According to the finance ministry, subsidies on fuels and cooking gas alone are projected to be about RM37 billion this year, most of which benefit the higher-income groups.

“The implementation of targeted subsidies will likely be done in stages and after taking into account the prevailing inflation rate,” Tengku Zafrul said. - FMT