KUALA LUMPUR: The World Bank has projected a modest growth forecast for Malaysia at 4.3% this year and 4.5% in 2018, mainly driven by private consumption.
This is slightly below the midpoint of the official 2017 gross domestic product (GDP) growth forecast of between 4.3% and 4.8% announced by Bank Negara last month.
World Bank country manager for Malaysia Faris Hadad-Zervos said despite significant global risks and uncertainties, Malaysia will continue to grow, with GDP projected to accelerate in 2018 and 2019.
The ultimate strategy that regions including Malaysia could pursue is to ensure there is fiscal space to enable Malaysia to continuously withstand global financial or trade risks.
These risks include the potential rate hikes by the United States Federal Reserve, among other policies.
“Malaysia could tackle its fiscal issues by expanding revenue via income tax, exemptions from the goods and services tax and other areas.
“Fiscal cushioning is a pertinent part of it and we should keep in mind the resources in hand and how to deal with it via taxation, services provided and the BRIM payout for the vulnerable population,” Hadad-Zervos told reporters after a video conference in line with the release of the East Asia and Pacific Economic Update report by the World Bank yesterday.
While rising fiscal pressure was more prevalent in other nations, World Bank senior economist Rafael Munoz Moreno said Malaysia’s fiscal position was less of a concern now, taking into account the recovery seen in commodity prices that had somewhat eased the condition.
According to the World Bank’s East Asia and Pacific Economic Update report for April, Malaysia’s fiscal deficits are expected to decline, with support from higher commodity prices and comprehensive reforms to tax policy and administration.
Although Malaysia managed its business cycles efficiently, Hadad-Zervos reckoned in terms of fiscal and monetary policies, Malaysia still needed to focus on balancing medium and short-term policies that would lead the nation toward achieving its high-income status.
“Moving forward, commodity prices will be better and favourable for Malaysia.
“The current challenge is how to grow from the current expectation of economic growth to a higher level,” Hadad-Zervos noted.
On the recent uptick in the consumer price index (CPI), which resulted in the real interest rate turning negative, Moreno said this surge was temporary.
“The uptick in the CPI is a reflection of last year’s base effect and the brief pick-up of fuel prices this year,” he said, projecting the CPI to converge into a more sustainable path.
The World Bank expects the CPI, a measure of inflation, to average at 2.2%, lower than Bank Negara’s projection of 3% to 4%.
The CPI grew by 4.5% in February compared to a year ago, mostly due to the increase in fuel prices.
Meanwhile, the World Bank has kept its 2017 economic growth forecast for developing East Asia and Pacific unchanged, but said the region was vulnerable to sharp slowdowns in global trade or tightening in financial conditions.
The outlook for East Asia is projected to remain broadly positive in the next three years, driven by domestic demand and a gradual recovery in the global economy and commodity prices.
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