Malaysia’s economy to grow slower than expected – World Bank

KUALA LUMPUR: Malaysia’s economy is expected to grow slower than expected due to the cancellation of large infrastructure projects and dimmer trade and export prospects.

The World Bank chief economist for the East Asia and Pacific region Sudhir Shetty said Malaysia would experience slower growth in the next three years due to the easing of exports and public investments until 2020.

“Malaysia is the one economy in this region that is likely to grow slower than we expected six months ago.

“There are two reasons – the cancellation of two large infrastructure projects and dimmer trade and output prospects which will affect the Malaysian economy in 2018,” he said in a video conferencing session today.

The World Bank, in its recently released World Bank East Asia and Pacific Economic Update, expects growth to moderate to 4.9 per cent this year, 4.7 per cent next year and 4.6 per cent in 2020. Last year, Malaysia’ economy expanded 5.9 per cent.

On why the forecast for Malaysia’s performance was less bullish, Shetty said now was the time for Malaysia consolidate the fiscal side of its economy.

“In the current context where the global economy is growing less quickly and risks are becoming more significant, this is not the time to prop up growth in the short term but rather to consolidate the fiscal side of the economy.

“This will be able to ensure that physical buffers are built up in case of shocks are larger than anticipated.

“In that sense, having a slower growth in the short term might be a trade off in favour greater stability going forward,” he explained.

Malaysia’s fiscal deficit is expected to narrow from 2.9 per cent this year,  2.8 per cent next year and 2.5 per cent in 2020.

“Malaysia’s economic growth is expected to moderate in the near term, growing at 4.9 per cent in 2018, underpinned by continued strong growth in private consumption.

“The stronger outlook for household spending primarily reflects the three-month tax holiday following the zero rating of the GST, and one-off payouts to civil servants and pensioners,” the report stated.

It expects Malaysia to achieve high-income country status at some point between 2020 and 2024.

Malaysia’s domestic financial markets are more bullish as investor’s sentiment was initially affected by the electoral transition and the turmoil in several emerging markets as well as continuing global trade tensions.

“As a highly open economy, Malaysia will continue to face substantial risks relating to uncertainty in the external environment.”

It added that heightened financial market volatility either triggered by shifting monetary expectations in advanced economies or crisis in other regions could spread across emerging economies inclusing Malaysia through capital outflows and pressures on exchange rates.

In the second quarter 2018, the ringgit depreciated by 4.4 per cent against the US dollar while the equity market declined by 9.2 per cent.

“On the domestic front, implementation of several election pledges will require careful management of potential risks. The change from GST back to SST and the adjustment to the fuel pricing mechanism in the absence of compensatory measures would constrain the fiscal policy space and place greater reliance on less stable direct taxation and oil-related revenue,” the World Bank said.

Source: NST