2020 budget assumes a more realistic oil price – OCBC

KUALA LUMPUR, The 2020 Budget has assumed a much more realistic Brent crude price of US$62 per barrel, compared to US$72 previously, said OCBC Bank (Malaysia) Bhd.

Its chief economist Selena Ling said petroleum revenue was slated to reach RM50.5 billion, about two per cent lower than the RM51.4billion expected this year, excluding the RM30 billion one-off dividend.

“Given the lower total revenue figure of RM244.5 billion versus RM261.8 billion of 2019, however, the proportion that petroleum revenues contribute to the total has stayed relatively high at 20.7 per cent, compared to around 18 per cent previously.

“The still-high ratio of petroleum contribution might be less of an issue now with a lower built-in crude price assumption but might be an area of focus once more should oil prices refuse to cooperate through the course of 2020,” she said.

She noted one area in which market might latch on as it digested the budget speech further was the relatively lofty growth expectation for 2020 of 4.8 per cent, which is higher than the 4.7 per cent revised 2019 forecast.

For context, the consensus forecast is at 4.3 per cent while OCBC Bank has a more sanguine 4.2 per cent pencilled in.

The Finance Minister, she said did not spell out exactly how the ambitious growth target could be achieved, but the bank could surmise that it rested heavily on supporting the domestic consumption.

She said the government had increased its allocation for subsidies and social assistance by 2.6 per cent to RM24.2 billion in terms of welfare assistance, cash handouts, education assistance, while minimum wage level would be increased further to RM1,200 per month for major cities in 2020, compared to RM1,100 currently.

“Overall, however, even as these measures will help cushion private consumption, which is an important part of the economy at close to 60 per cent of the total gross domestic product by expenditure, we still think the overall growth target might be hard to reach.

“That is because, while private consumption is still expected to grow relatively healthily, other engines of the economy might not be as robust,” she argued.

Source: BERNAMA (News Agency)