Business

Wednesday November 5, 2008

Govt hopes latest measures can avert recession

By JAGDEV SINGH SIDHU and YVONNE TAN


Shot in the arm for economy

KUALA LUMPUR: The Government has introduced measures that it hopes will steer the economy away from a recession by focusing on sectors that will work fast to boost the economy.

Higher government spending, putting more cash in the pockets of consumers and cutting production costs in key sectors of the economy, such as property and plantations, should see an economic growth of 3.5% in 2009 from an earlier projection of 5.4%, the Government said.

Growth for 2008 is revised to 5% from an earlier forecast of 5.7%.

The cost of propping up the gross domestic product (GDP) growth will come at a cost though; the Government’s fiscal deficit is projected to widen to 4.8% of GDP in 2009 from an earlier estimate of 3.6%.

Some of the sectors that will gain from the package are property, plantation and construction. Higher government spending, putting more cash in the pockets of consumers and cutting production costs in key sectors of the economy, such as property and plantations, should see an economic growth of 3.5% in 2009 from an earlier projection of 5.4%, the Government said.

But Finance Minister Datuk Seri Najib Tun Razak, in his speech in Parliament, said that was reasonable considering the country had ample domestic liquidity.

The big surprise was the revenue-generating move by the Government to sell land via an open tender to private and government-linked companies.

Industry players welcomed the move, saying the property sector would be lifted by the availability of prime land for development.

RAM Holdings Bhd group chief economist Dr Yeah Kim Leng said the introduction of Malaysia’s stimulus package was in line with the actions of other countries such as South Korea which had also taken pre-emptive measures to counter a possible deep and protracted slowdown in the global economy.

“The package can be seen as a means to bolster the domestic economy and sustain consumer and investor confidence,” he said. “More important is the speediness and effectiveness of the implementation of all the measures.’’

A slew of government spending plans were announced in the RM7bil stimulus package, with much of that predominantly focused on the social safety net.

A lot of that money will find its way to consumers. And to give retail spending an additional boost, the Employees Provident Fund (EPF) contributions will be voluntarily cut by three percentage points to 8% from 11% for two years.

Economists said past attempts to put more cash in household budgets by cutting employees’ contribution to EPF had been succcessful in maintaining spending. The Government estimates that if all contributors agree to the cut, an additional RM4.8bil will be injected into the economy.

Other measures to boost consumption were the extension of the tenure of civil servant housing loans and raising the threshold for car financing.

The Government has also looked into the cost of operations of companies hit either by a drop in commodity prices or a hike in production cost, namely the plantations and property/construction sectors.

To boost the price of crude palm oil (CPO), replanting of newer trees would be encouraged and partially funded by the Government.

Construction and property firms were also given a lift through cost-cutting measures when Najib announced that import duties on cement and long bars and steel products would be abolished along with the requirement for the need to have import permits for such products.

Deloitte KassimChan Tax Services Sdn Bhd managing director Ronnie Lim said the measures introduced for the property and construction sectors would cause ripple effects on many different sub-sectors.

“The measures should also help, to a great extent, the smaller companies,” Lim said. “Measures such as allowing hypermarkets to close late will facilitate consumer spending.’’

Property players were also equally happy over the removal of the need for Foreign Investment Committee approval for the sale of commercial property costing RM500,000 and more.


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