MALAYSIA’S economy, as measured by the gross domestic product (GDP), is expected to remain resilient despite growing uncertainties in the external sector.
Supported by firm domestic demand, the country’s GDP is projected to expand 4.8% this year, before picking up slightly to 4.9% in 2019. These numbers, however, still pale in comparison to the 5.9% GDP growth rate achieved in 2017 when the external conditions were relatively better.
Malaysia’s GDP growth for the first six months of 2018 stood at 4.9%.
According to the Economic Outlook 2019, private sector expenditure, in particular, household spending will remain as the anchor of growth for 2018 to 2019 following a continuous increase in employment and wages amid benign inflation.
Private investment, on the other hand, will be supported by new and ongoing projects in the services and manufacturing sectors.
The government will take a step back in driving the economy, with public expenditure expected to grow marginally in 2018, before contracting in 2019, following the lower capital outlays by public corporations.
Sector-wise, services is expected to remain the largest contributor to Malaysia’s economy, driven by steady consumer spending, which will benefit the wholesale and retail trade, finance and insurance as well as information and communications subsectors.
The manufacturing sector is projected to register firm growth primarily thanks to continuous demand for electrical and electronic products.
The agriculture and mining sectors, on the other hand, are expected to rebound next year after recording a marginal contraction this year, following an increase in the production of crude palm oil and liquefied natural gas.
The construction sector is expected to moderate in 2018-2019 with the near-completion of infrastructure projects as well as the property overhang, particularly in the non-residential segment.
Malaysia’s external position is projected to remain resilient in line with steady global economic and trade performances. The current account surplus is expected to narrow, following the widening of deficits in the services and income accounts.
As it stands, global GDP is projected to expand 3.7% in 2018 and 2019, down from an earlier projection of 3.9% by the International Monetary Fund. The downward revision reflects elevating policy uncertainties, with several risks stemming from rising trade tensions and outflows of capital from emerging economies.
Amid the various challenges, Malaysia’s monetary policy will continue to be supportive of domestic economic growth, while ensuring price stability.
For instance, the overnight policy rate was only raised once this year, that is by 25 basis points to 3.25% in January, and the benchmark interest rate has since been maintained at that level through the year.
For 2019, the monetary policy will remain accommodative and considerations for adjustments will depend on risks surrounding the outlook for domestic growth and inflation.
Overall, the domestic financial sector is expected to remain sound, supported by financial institutions operating with strong capital and liquidity buffers despite the downside risks associated with global uncertainties, particularly in the pace of interest-rate hikes in the United States as the world’s largest economy continues its monetary policy normalisation path.
