‘GROWTH TO SLOW IN NEXT 3 YEARS’
Economist cites cancellation of 2 large infrastructure projects, dimmer trade and export prospects
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’s 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.
“Malaysia is one of the economies in this region that is likely to grow slower than we had expected six months ago.
“There are two reasons — the cancellation of two large infrastructure projects and dimmer trade and output prospects. They will affect the Malaysian economy this year,” he said in a video conferencing session yesterday.
The World Bank, in its recently released World Bank East Asia and Pacific Economic Update, expects Malaysia’s 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.
Shetty said the forecast for Malaysia’s performance was less bullish as it was time for the country to consolidate its fiscal 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 economy.
“This will ensure that physical buffers are built up in case shocks are larger than expected.
“Having a slower growth in the short-term might be a better trade off in favour of greater stability ahead,” he said.
Malaysia’s fiscal deficit was expected to narrow from 2.9 per cent this year to 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 this year, 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 Goods and Services Tax (GST) and one-off payouts to civil servants and pensioners,” according to the report.
It expects Malaysia to achieve high-income country status at some point between 2020 and 2024.
Malaysia’s domestic financial markets are more bullish now as investor sentiment was initially affected by the electoral transition, turmoil in emerging markets and global trade tensions.
“As an open economy, Malaysia will continue to face substantial risks relating to uncertainty in the external environment.”
The report added that heightened financial market volatility, triggered by shifting monetary expectations in advanced economies or crisis in other regions could spread across emerging economies, including Malaysia, through capital outflows and pressures on the exchange rates.
“On the domestic front, the implementation of some election pledges will require careful management of potential risks. The change from GST to the Sales and Services Tax and the adjustment to fuel pricing mechanism, in the absence of compensatory measures, will constrain the fiscal policy space and place greater reliance on less stable direct taxation and oil-related revenue,” said the World Bank.