Economists believe the new economic stimulus measures unveiled yesterday can achieve their objective of boosting domestic consumption and help cushion Malaysia's economy amid a global slowdown.

AmInvestment Bank economist Manokaran Mottain said the three per cent cut in Employees Provident Fund (EPF) contribution for employees was the right step towards boosting household consumption.

A three per cent cut is estimated to be able to release RM4-5 billion into the system as disposable income. This will raise private consumption activities and provide a multiplier effect towards domestic growth.

"In 2001 and 2003, the government cut EPF contribution by two per cent, a move which proved effective in stimulating private consumption and boosting economic growth."
 
The widening deficit revised from 3.6 per cent to 4.8 per cent of the gross domestic product next year should not be a major concern during a crisis like now, said Manokaran.

"What is most needed is government spending to boost economic activities as is being done by other governments elsewhere. The widening deficit is also due to shrinking revenue as a result of a slowing economy," he said.

The larger fiscal deficit is due to a RM7.5 billion fall in estimated revenue, from RM176.2 billion previously, to RM168.73 billion.

In absolute value, the total deficit has not changed much from that announced at the tabling of the budget, implying that the government is still prudent in its spending.

Rating Agency Malaysia Bhd (RAM) chief economist Dr Yeah Kim Leng described the announcement as a positive preemptive measure to cushion against the external demand shock which is likely to hit Malaysia in the coming months.

"What is important is for such measures to be implemented speedily and efficiently," he said.

The rating agency expects the Malaysian economy to grow 3-4 per cent next year.

"What has been announced has short-term boosters and medium to long-term stimulus. I think this will enhance private investment climate.

"In the case of Malaysia, we are not facing any crisis but facing a slowdown. So it is important to maintain business and consumer confidence," Yeah said.

US investment bank Citi vice-president of Asia Pacific economics and market analyst Kit Wei Zheng, meanwhile, said the equity market may have been expecting much more aggressive measures.

"To that extent, yesterday's announcement may have been a disappointment from the market perspective."

"Key measures announced were largely skewed towards boosting consumer disposable income, helping low-income or rural households, upgrading social infrastructure and lowering business costs," he said.

Economists said with the prospects of slower economic growth next year and lower inflation growth, Bank Negara Malaysia would now have more room to lower interest rates.