After the budget: business and investment outlook

Abstract

The purpose of this paper is to track business and investment growth and performance during the 1988 recovery and to consider the outlook for business over the next four quarters. This is done by examining the Malaysian business cycle in macroeconomic as well as in sectoral terms. Analysis of the components of the recent business recovery in the longer term perspective would also give some insight into the sustainability of the business upturn and give a more reliable forward projection of business and investment activity. In making some comments on the business and investment outlook, the paper seeks to assess the likely impact of the budget measures recently introduced in the 1989 Budget. The overall view is that the 1989 Budget is going to be stimulative to investment and business activity, especially resulting from the corporate tax reductions proposed and to be implemented in the new fiscal year. A shift in investment towards the domestic sector could result, although direct foreign investment will continue to be dominant for some time in the future. In presenting its results the paper relies heavily on the quarterly MIER Business Condition Surveys and the Consumer Sentiments Surveys. Surveys. We also made use of the MIDA surveys and sources for the investment data. The latter series still need to be refined especially especially to assess the to assess the fallout from fallout from investment approvals. The rate of investment growth has been impressive over the last ten months in terms of of approvals, but actual implementation still lags behind. In terms of the need to catch with the investment levels of the early eighties such growth rates of investment will have to be sustained over a longer period. This is where consistency of industrial policy and new initiatives become crucial in the promotion of new investment and business activity.