Research Briefing | Nov 3, 2021

Malaysia | Fiscal stimulus primed to support the recovery

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The government has announced a record spending plan in the 2022 Budget to spur the post pandemic recovery. Measures include an increase in cash aid and tax and financing support to households and businesses, as well as high multiplier infrastructure projects previously announced.

What you will learn from this report:

  • We estimate that the fiscal measures will add around 0.8ppts to GDP growth in 2022, boosting our forecast to 6.8%.
  • Despite the high spending projections, we forecast the deficit to narrow to 6.1% of GDP (from 6.7% this year) due to a rebound in revenues amid stronger economic growth and higher oil prices. The government also announced a one-off prosperity tax. While we believe most corporates will not meet the RM100 million revenue threshold, it may still dent investor sentiment in the short run.
  • Indeed, equities fell 2.2% after the announcement. But given we estimate Malaysian equities are around 20% undervalued and growth prospects are firming, we expect any risk off sentiment to be short lived.
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