World Bank cuts 2015 Malaysia GDP forecast

PUTRAJAYA: The World Bank has cut its 2015 growth forecast for Malaysia’s economy to 4.7% from an earlier estimate of 4.9% on expectations of slower export growth and investments in the oil and gas industry as well as moderate private consumption next year.

The intergovernmental financial organisation, however, has maintained its expectations of a 5.7% gross domestic product (GDP) growth for Malaysia for 2014.

“It is still a robust and strong growth for an advanced middle-income economy,” Ulrich Zachau, World Bank’s country director for South-East Asia, said of the revised 2015 GDP growth estimate for Malaysia.

“It compares well with other countries in the region, and we are positive about the outlook for Malaysia as good policies are in place to support the country’s economic stability and growth,” Zachau told StarBiz before launching World Bank’s latest edition of Malaysia Economic Monitor entitled Towards a Middle-Class Society in Putrajaya yesterday.

Zachau: ‘At present, the single most important challenge for Malaysia is managing the downside risk arising from declining global crude oil prices.

According to the World Bank, Malaysia’s export growth would likely slow to 4.1% next year, from the estimated 5.4% this year. Investment in oil and gas was also expected to slow in 2015 amid declining global oil prices, while private consumption in Malaysia was expected to moderate as consumers adjust to higher prices when the goods and services tax kicks in in April and credit moderates further.

“As a result of these factors and the high base in 2014, the forecast for GDP growth in 2015 has been revised to 4.7%,” World Bank said in its report.

Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar, however, said World Bank’s 2015 GDP growth target for Malaysia was simply “too conservative”.

“We will still stick to our GDP growth target of 5% to 6% for 2015,” Wahid said in his official address in conjunction with the launch of the World Bank report.

Wahid noted that given the uncertainties surrounding the global economy, Malaysia’s GDP next year might come in at the lower end of the official target range.

According to Zachau, the critical risk for Malaysia right now is on the external side.

“Overall, the world economic outlook is not greatly positive,” he said.

“At present, the single most important challenge for Malaysia is managing the downside risk arising from declining global crude oil prices,” Zachau pointed out.

While the World Bank acknowledged that lower commodity prices would put pressure on Malaysia’s fiscal and current accounts, the bank at the moment still believed that Malaysia would be on track to cut its 2015 fiscal deficit to 3% of GDP as targeted and that the country’s current account would remain in a surplus position, albeit at a lower level than in 2014.

The World Bank had projected Malaysia’s current account surplus to GDP ratio would narrow to 3.1% in 2015 from 4.2% this year.

“Low oil prices have helped Malaysia in the short term, as savings from the elimination of fuel subsidies would likely outweigh the potential medium-term decline in revenue from oil,” Zachau said.

“However, if oil prices were to fall further and stay low longer, there would undoubtedly be negative risks to Malaysia’s current and fiscal accounts,” he noted, adding that oil prices lower than US$60 per barrel would already pose some negative effect on Malaysia.

Wahid, meanwhile, stressed that Malaysia was in a better position to weather the challenges of declining oil prices compared with other oil producing countries. He highlighted the fact that the country has a well-diversified economic base and reduced its reliance on oil revenue in recent years.

“Short-term fluctuations will not affect the medium and long-term prospects of Malaysia,” he said.

While Wahid acknowledged that the rapid decline in oil prices, slowing export growth and weakening ringgit represented “added challenges” to Malaysia’s economy, he said the Government was closely monitoring the situation to ensure that the adverse impact from those challenges was minimised.

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