AMID the gloomy economic projections moving forward, the Malaysian economy is expected to expand between 4% and 5% in 2017, outbeating the world economy’s expected growth of 3.4%.
As world trade is hampered by growing protectionism, Malaysia’s economic growth is expected to be catalysted by strong domestic demand, especially via significant private sector expenditure.
In order to encourage robust private sector activity, pro-growth fiscal and accommodative monetary policies will be in place in an environment of moderate inflation, which is anticipated to range between 2-3%.
To complement the participation of the private sector in boosting the economy, public sector expenditure will be driven mainly by higher capital investment by public corporations.
Sectoral prospects – Supply side
For the supply side, growth is expected to be broad-based. Driven by expansion across all sub-sectors, value-added in the services sector is expected to grow by 5.7%, marginally higher than 5.6% on-year.
Strong domestic consumption and tourism-related activities are expected to boost the wholesale and retail trade as well as food & beverages and accommodation subsectors, to grow by 6.7% and 6.5%, higher than growth registered in 2016.
With more small and medium enterprises (SMEs) and households embracing digitalisation and online connectivity, the information and communication subsector is projected to grow by 9.6%.
Meanwhile, the real estate and business services subsector’s value addition is expected to grow by 6.5% in 2017 in view of increased demand for professional services, marginally lower than 6.6% in 2016.
The transport and storage subsector is anticipated to expand by 5.8%, largely driven by higher passenger volume following the commencement of Mass Rapid Transit (MRT) services.
The manufacturing sector is expected to grow by 4.1% in 2017, marginally higher than 4% in 2016. The expansion in the export-oriented industries will be driven by sustained demand for electrical and electronics (E&E) goods.
The agriculture sector is projected to improve significantly to 1.5% after a sluggish performance in 2016, in which the growth dipped by 3.3%. Improvement in oil palm and rubber production, as well as strong growth in the food commodity subsector are expected to catalyse the positive growth in the agriculture sector.
As for the mining sector, it is expected to grow 1.4% due to higher output of natural gas. However, crude oil production is projected to decline as maturing oil fields are increasing in number.
The construction sector is projected to grow at a slower pace by 8.3% compared to 8.7% in 2016, driven by the commencement of large infrastructure projects such as MRT Sungai Buloh-Putrajaya and Pan Borneo Highway, among others.
Domestic Demand
Despite talks of rising cost of living, aggregate domestic demand is expected to continue growing at 4.9%, compared to 4.7% in 2016. This is underpinned largely by private sector expenditure which is envisaged to grow by 6.2%. Public sector expenditure is expected to increase by 0.6%.
Influenced by favourable business sentiment, private investment is forecast to increase by 5.8%, accounting for 17.2% of GDP.
On the other hand, private consumption is expected to grow 6.3%, on account of stable labour market, accommodative interest rates and manageable inflation.
Cash transfers such as Bantuan Rakyat 1Malaysia (BR1M) and lower EPF contribution from 11% to 8%, are expected to increase household disposable income, which in turn will promote consumption of Malaysians.
Public investment is expected to increase by 1.1% while public consumption is projected to increase marginally by 0.4%, following the Government’s prudent fiscal management and to contain fiscal deficits.
In terms of gross national savings (GNS), it is forecast to expand by 6.7% to RM365.8bil. However, the increase in GNS is expected to be offset by stronger investment spending by the private sector, resulting in lower savings-investment gap of 0.5-1.5% of gross national income.
External Sector
Malaysia’s external position is expected to remain resilient as gross exports are expected to grow by 2.7% following a rebound in exports of commodities and continued demand for E&E products.
Gross imports are anticipated to expand further by 3.4%, driven by more capital goods imports as well as construction and infrastructure projects.
A trade surplus is projected at RM88.3bil, indicating more exports compared to value of imports.
The services account is projected to remain in deficit at RM23.1bil in 2017, at slightly higher deficit than RM22.1bil in 2016.
Meanwhile, the surplus in the travel account is expected to increase to RM30.8bil, in contrast to RM29.3bil in 2016, driven by higher tourist spending.
While the primary and secondary income account are expected to register deficit figures. However, the surplus in the goods and services account will be able to offset the net outflows in the income account.
Hence, the current account is expected to remain surplus at RM14.8bil or about 0.5%-1.5% of gross national income in 2017.
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