Malaysia's government spending to exceed target by 6%

Lower oil revenue looms amid sluggish export demands.

The government is injecting an additional MYR 13.8bn in a bid to boost the domestic economy. To date, the local demand seems to be the key factor determining Malaysia’s growth prospect for the year.

Here's more from OCBC's Daily Teasury Outlook:

The government plans for an additional MYR 13.8bn fiscal spending this year, in a bid to boost the economy amidst the slowing global economy. Total expenditure is expected to be 6% higher than the initial MYR 230bn target.

While cues from Wall Street overnight were broadly positive, it seems unlikely that the KLCI will make any strong gain in the near-term, with the 1580 mark still likely to cap for now. The May inflation data is due the week of 18 June, but unlikely to trigger any reaction in the market given that the BNM is widely expected to hold rates unchanged. Watch for developments regarding the MYR 13.8bn supplementary budget, amidst talks that the government is proposing such measures.

The planned increase in fiscal spending clearly indicates that the government would continue to maintain its active presence in supporting the economy’s growth momentum. The extra 6% expenditure this year is likely to mean that the fiscal deficit may inch slightly higher, with the current forecast at 5% of GDP already above the government’s official target of 4.7% of GDP.

The recent moderation in oil price also puts pressure on the fiscal balance, given that it would only mean lower oil revenues this year. As it is though, the domestic demand seems likely to be the key factor determining Malaysia’s growth prospect for the year especially given clear signs of a sluggish exports demand in recent months.