KUALA LUMPUR, Aug 24 — Malaysia’s economic growth will be slow for the remaining part of the year as the economy enters a transition phase following the historic May 9 election, Singaporean banking group OCBC said today.

OCBC also said that the government debt level was in a perilous situation.

"Federal government debt stood at 50.8 per cent of the GDP while guaranteed debt was at 17.6 per cent of the GDP,” OCBC said in a research report.

According to OCBC, the fiscal deficit overall has been on the decline over the last few years, although it expects the deficit to increase to 3.2 per cent of the GDP for 2018, given the government’s budget changes and taking into account a revision to the growth forecast.

After having been below the optimistic level of 100 for a few years, the Malaysian Institute of Economic Research (MIER) consumer index has finally turned optimistic, crossing the 100 level in the second quarter of 2018. Any score above 100 indicates that there is positive confidence of the economy.

"There could be multiple reasons behind this including the abolishment of GST or the optimism related to change occurring,” said OCBC.

Another important barometer to gauge the confidence in the economy, the MIER business conditions index, has also crossed the 100 level to hit 116 per cent, despite the uncertainty related to the status of government-linked companies (GLCs), major key government projects or reforms to any new laws.

OCBC also said the government may delay its pledge to stabilise petrol prices and reintroduce targeted petrol subsidies.

According to the OCBC report, the government has been non-committal to some of its promises such as raising Bumiputera equity participation and improving the nation’s education and taxation systems.

In its research note, OCBC stated that the Malaysian Ringgit was weaker than before the election and year to date. US Dollar — Malaysian Ringgit has risen by 1.24 per cent as of August 21 2018.

However, compared to other peer Asian currencies, the value of the US Dollar — MYR has actually fared much better compared to the US Dollar — Indonesian Rupiah (7.46 per cent ), US Dollar — Philippine Peso (6.96 per cent ) and USD — Singapore Dollar (2.22 per cent) as of 21st August 2018.

"Thus, it can’t be deduced that the change of government had significantly impacted the MYR, but rather external factors such as stronger US data, Fed interest rate normalisation and trade tensions could be bigger influences,” said OCBC.

The FBM KLCI is also hovering close to pre-election levels around at 1,800 points.

Government expenditure rose by 3.3 per cent year on year due to increased spending on supplies and services, while public investment contracted by 9.8 per cent.

According to OCBC, this was typical of an election period. It said the key caveat to draw from these growth figures is that at this point, there doesn’t seem to be any immediate signs just yet of pessimism towards the transition happening this year.

The banking group also said it was lowering its GDP growth forecast for 2018 from the initial 5.3 per cent as it would be difficult for the economy to play a catch up game in 2H 2018.

The highlights to watch for the rest of the year would be the Mid Term Review of the 11th Malaysian Plan in October or November and the tabling of the 2019 budget on November 2.

The key items to look out for in the budget are expenses related to fuel subsidies, government contribution to pension of housewives and government support for the raising of the minimum wage, said OCBC.

As for the 11th Malaysia Plan, one should look out for the direction the government will set with regards to the role of GLCs. According to OCBC, signs at the moment are pointing more towards stronger domestic economic sentiment even though policy uncertainty may still persist.