Nomura senior economist Euben Paracuelles said the positive outlook is backed by Malaysia’s current improved economic outlook for the second half of 2017 (2H17).
“Chances of the BN coalition of Prime Minister Najib Razak winning more seats is a real possibility at this point if the election is called this year,” he said in a conference call from Singapore at its Kuala Lumpur headquarters here today.
Malaysia’s 14th general election must be held before August next year but is speculated to be held sometime between October 2017 and May 2018.
Euben said the government will be more likely to concentrate only on important operating expenses for the country rather than spending lavishly as they did in previous elections.
The government is likely to maintain its budget deficit target of 3% this year when compared with 3.1% in 2016, he added.
Euben said a very tight fiscal policy is essential for Najib to be able to maintain his current fiscal reforms and boost investor confidence.
He noted that the government had already introduced the goods and services tax (GST) and subsidy rationalisation for certain items.
“From the investors’ perspective, what matters to them is the fiscal reforms that they have already seen in Malaysia.
“What would give investors confidence is a similar government that would take over and continue similar fiscal policies,” he said.
Nomura revised Malaysia’s gross domestic product (GDP) for the 2H17 to 5.3% compared with its earlier 4% growth forecast issued at the end of March.
This is backed by stronger exports and diminishing political noise, he said.
“This will work in BN’s favour to retain its power.
“Although there would be exaggerated political noise from the opposition, considering issues like 1MDB, it is unlikely that this will derail the train of growth for Malaysia throughout this year.”
Euben said shocks from the troubled sovereign wealth fund 1MDB seem to be tapering off in the market.
He said unlike in 2015, the market nowadays seems not to react as negatively as it did before.
Nomura also maintained its ringgit forecast of 4.32 against the US dollar by end of the year.
“Also, there is no track record of a different coalition running Malaysia. And if the opposition wins the election, it is highly likely that they will continue the same fiscal reforms as Najib’s coalition to maintain the economy,” added Euben.