Private sector expenditure to anchor domestic growth

PRIVATE sector expenditure is expected to continue anchoring the growth of domestic activities in the economy.

According to the Economic Outlook 2019/2020, private sector expenditure, which constitutes about 80% of domestic demand, will support growth at 5.6% in 2019 and 5.8% in 2020.

Meanwhile, public sector expenditure is estimated to decline by 1.8% in 2019, weighed down by lower investment spending by public corporations.

In 2020 , the public sector expenditure is expected to rebound 0.8% largely driven by acceleration of projects towards the tail-end of the 11th Malaysia Plan, coupled with revival of strategic projects, says the report.

“Notwithstanding heightening external headwinds following prolonged trade war and geopolitical tensions, domestic demand is expected to speahead growth of the Malaysian economy, expanding by 4% in 2019 and 4.8% in 2020,” says the report.

Major underlying factors, including a stable labour market amid low prices, are expected to remain intact.

Private consumption is expected to grow at a moderate pace of 6.8% in 2019 due to the base effect following the removal of the Goods and Services Tax (GST) in the second of 2018. Household spending will continue to be supported by wage growth and favourable employment prospects, especially in the services sector.

In 2020, consumption spending is seen to record a growth rate of 6.9%, supported by some major events slated to take place in that year.

On the other hand, private investment is expected to grow at a slower pace of 1.5% in 2019, reflecting lower external demand and capacity utilisation rate, particularly in the export-oriented industries.

“In the first of 2019, investors remained cautious as reflected in Business Confidence Index of 94.3 points, below the 100-threshold points.”

However, the report says that investment is anticipated to pickup in the second half of the year.

“In 2020, investors’ sentiment is expected to improve further, especially with the resumption of strategic projects and higher exports, particularly electrical and electronics (E&E).

The payment of tax refunds is also anticipated to provide impetus to private sector activities.

Overall the momentum in private investment is projected to expand 2.1% in 2020, according to the report.

In line with the fiscal consolidation path, public consumption is projected to remain moderate at 2% in 2019 and 1.5% in 2020.

Public investment, meanwhile, is projected to decline significantly by 8.1% in 2019, primarily due to lower capital outlays by public corporations, in oil and gas-related industries.

However in 2020, public corporations’ capital spending, which accounts for about 70% of total public investment is expected to improve. Given this, public investment is projected to record a mild decline of 0.6% in 2020, the report adds.

The report points out that the government’s development expenditure during these two years will remain high and concentrated in economic and social sectors. In the economic sector, investments will be channelled mainly into transportation system; energy and public utilities; as well as trade and industry. As for the social sector, the bulk of expenditure will be go into education and healthcare.

In 2019 gross national income (GNI) in current prices is forecast to increase steadily at 5.5% to RM1.5 trillion, while of gross national savings (GNS) is anticipated to go up by 1.4% to Rm377.5bil.

With the level of GNS seen to exceed total investment, the savings-investment gap is expected to record a surplus of 2.9% of GNI in 2019 – enabling Malaysia to continue to finance its growth.

In 2020, GNI is expected to record a growth rate of 5.8% to RM1.6 trillion, while GNS seen to expand marginally by 0.8% to Rm380.6bil.

“The share of GNS as a percentage of GNI remains high at 24.4%, primarily contributed by the private sector. Meanwhile, total investment is expected to increase markedly by 5.2% to Rm351,6bil and account for 22.6% of GNI.”

With investment increasing faster than savings, the savings-investment surplus is projected to narrow to Rm29bil or 1.9% of GNI.

According to the report, this amount remains substantial, providing ample liquidity to mobilise long-term productive investments without recourse to external financing.