World Bank lifts Malaysia’s economic growth forecast to 5.4%

KUALA LUMPUR: The World Bank has raised its forecast for Malaysia’s 2018 economic growth to 5.4% from October’s 5% projection but warned risks from shifts in external demand and financial market conditions could hurt prospects of the trade-reliant country.

Malaysia’s exports growth is likely to be sustained in the first half of this year in line with the rise in global trade, the multilateral agency said in its latest East Asia and Pacific Economic Update.

Economic growth, however, could moderate to 5.1% in 2019 and 4.8% in 2020, it said.

Global financial market shocks or weak exports could have “disproportionately negative spillovers” on Malaysia, the World Bank said. “Domestically, risks relate primarily to relatively high level of household and public debt, as well as uncertainties surrounding forthcoming general election.”

The Government forecast pegs economic growth at between 5.5% and 6% this year compared with 5.9% expansion in 2017, mainly driven by resilient domestic demand and exports of manufactured goods.

The third-largest South-East Asian economy is a major exporter of electronics and electrical goods that account for one-third of its total shipments.

Manufacturing wages in Malaysia grew 9.4% in the fourth quarter of 2017, almost twice the rate of the wage growth in the services sector.

Malaysia could achieve high-income status between 2020 and 2024, the World Bank said.

The Government, however, needed to step up structural reforms for sustained longerterm growth and facilitated transition when economic activities remained robust, it said.

A high-income economy is defined by the World Bank as one where the total income per citizen is US$12,476 a year or more.

Malaysia’s per capita gross national income was US$9,860 in 2016 and was at par with economies such as Mexico and Thailand, which rank as upper-middle-income countries.

“Concurrently, achieving a near-balanced federal budget over the medium term would necessitate a deeper wave of reforms to enhance revenue collection and improve public sector efficiency, including the targeting efficiency of social protection programmes,” the World Bank said.

Malaysia has been making some progress in reining in its long-running budget deficit that stretches back to the 1997-1998 Asian financial crisis.

The Government has eliminated subsidies – deemed wasteful by economists – on goods such as fuel and sugar as part of its move to adhere to tighter fiscal discipline. — Reuters