ADB sees modest recovery for Malaysia
KUALA LUMPUR: The Malaysian economy has bottomed out last year and will see a modest recovery with a 4.4 per cent growth rate this year before rising to 4.6 per cent next year, says the Asian Development Bank (ADB).
Firmer growth in the major industrial economies and a mild recovery in domestic investment are likely to raise the level of economic activities, it said.
Growth recovery would be well below the 5.3 per average rate the country achieved in 2011–2015, said the Manila-based bank in its 2017 outlook.
It will be accompanied by higher inflation at 3.3 per cent and a smaller current account surplus.
Sustaining growth as income rises would require higher productivity, which could be achieved through a major effort to strengthen innovation, it added.
A diversified economic base and a flexible exchange rate had helped cushion the economy from a slump in global oil and commodity markets over the past two years.
Last year, growth slowed, weighed down by decelerating fixed investment, weaker government spending and a fall in net exports of goods and services.
As growth slowed, the unemployment rate edged up to 3.5 per cent in the fourth quarter last year from 3.2 per cent a year earlier.
Annual growth in private consumption made the largest demand-side contribution to gross domestic product (GDP) growth last year through support for household spending from increases in public sector salaries, a higher minimum wage and government cash transfers.
ADB said the outlook for private fixed investment is improving somewhat with higher prices for hydrocarbons, recovery in agriculture and better prospects for semiconductors.
“However, concerns over possible global trade disruption and the impact of the normalisation of United States monetary policy on capital flows to developing countries are likely to restrain recovery in investment.
“A pipeline of large infrastructure projects, such as the Pan Borneo Highway, the Pengerang refinery and petrochemical plant, mass rapid transport projects in Kuala Lumpur, the East Coast Rail Link and the highspeed rail line to Singapore, should stimulate both public and private investment.
“As for net external demand, its drag on GDP growth is forecast to diminish this year unless global trade is seriously disrupted.”
ADB said private consumption is expected to grow this year at around last year’s pace.
“Rising wages are seen to underpin household spending as are government measures to bolster incomes, including tax breaks, higher cash transfers to lower income groups and a reduction in mandatory employee contributions to the national retirement fund.”
By sector, growth in services would benefit from rising inbound tourism aided by the depreciation of the ringgit. Rupa Damodaran