Restructured budget to be unveiled today likely to see cuts in capex

KUALA LUMPUR - The Malaysian Government will rightly make cuts to capital expenditure (capex) at the restructured budget announcement today, HSBC said.

"It's hard to predict what will be announced, but there continues to be a thrust on capex by the Government," said South-East Asia economist Lim Su Sian during HSBC's economic and market outlook 2015 yesterday.

"I think that should be maintained, as the Government strives to achieve mid to long-term growth," she said.

Lim noted that the Government would remain committed to achieving its fiscal budget deficit target of 3 per cent of the gross domestic product (GDP).

"The Government will remain committed to its fiscal targets and I don't think we will see any significant departure from that.

"As the Government suffers from the depression in revenues from oil, it will hopefully announce tweaking on changes to the expendable side," she said.

The review and restructuring of the budget was made following the weakening of the ringgit and falling global oil prices.

Lim said the Government was limited on the measures that it could implement.

"The Government is limited, as we are looking at a year of moderated growth in 2015. You sort of want to maintain fiscal targets by not being overly conservative in your spending, as that still needs to occur to keep growth running at a certain level."

Separately, Lim said HSBC expected a Malaysian GDP growth of 5.2 per cent this year compared with 5.8 per cent in 2014. She said the drag on growth would be export and investment-led.

"We do see downside risks on the export front. A lot of the outlook will depend on where oil prices and the US dollar is headed. Where there is room to improve is operating expenditure. Let's see where we can cut back.

"We do see downside risks on the export front and that may have an impact on our numbers. A lot hinges on where oil prices and the dollar will hit," she said.

Lim added that she expected consumer spending to remain fairly resilient this year. "In some sectors like manufacturing, wage growth has been flat. It has been robust in other sectors like retail."

On another note, HSBC Hong Kong Asia Pacific foreign exchange research head Paul Mackel said there would not be a need to peg the ringgit to manage risk.

"If you think about what happened last week with Switzerland removing its peg, the franc versus the euro, it says something about how the central banks want additional flexibility to manage the impact on their domestic economy.

"I think it's a similar type of story for Malaysia. Part of the release valves, the pressures on the domestic economy from fallen energy prices, part of the shock absorbers to that is to have the currency weakened. That's a prudent policy choice to have that flexibility through the exchange rate," he said.

Mackel also said he expected the ringgit to stabilise in the second half of the year and trade around RM3.57 (S$1.33) to a dollar by the year-end.