Lead economist for Malaysia Richard Record said private consumption would continue to be the main driver of growth, albeit expanding at a more measured pace.
“Household spending will be buoyed by stable labour market conditions and income support measures such as the Cost of Living Aid (Bantuan Sara Hidup),” he told reporters at the East Asia and Pacific (EAP) Economic Update briefing here today.
He said gross fixed capital formation was expected to increase slightly, driven by the private sector, while public investment was expected to remain subdued in the near term.
“The external sector may be negatively affected by heightened uncertainty surrounding the global environment, particularly the possible escalation of US-China trade tensions,” he said.
Record said monetary poverty was expected to continue its downward trend in 2019, with a projected decline to 1.4 per cent based on the upper middle-income countries (UMIC) poverty line of US$5.50 (US$1=RM4.12) per person per day in 2011.
“Several initiatives for low-income households, including the national B40 Health Protection Fund, an insurance scheme for the B40 group, and affordable housing initiatives are in the pipeline to improve both monetary and non-monetary wellbeing,” he said.
Going into 2020, he said Malaysia’s economy was projected to expand at 4.6 per cent, and the country was expected to achieve high-income country status by 2024.
He said the country’s fiscal deficit was expected to narrow to 3.4 per cent of GDP in 2019 and subsequently to three per cent in 2020.
“Near-term fiscal consolidation efforts are expected to be achieved primarily through rigorous expenditure rationalisation, with broad-based declines (in percentage of GDP) projected across major components of operating and economic development outlays.
In terms of risks and challenges, Record said the ongoing uncertainties surrounding the US-China trade tensions and shifts in global financial market sentiment would pose downside risks to Malaysia’s economy in the near term, due to the country’s high degree of trade and financial integration.
“On the domestic front, the relatively high levels of government liabilities and increased dependency on oil-related proceeds could potentially constrain the flexibility of fiscal adjustment against future macroeconomic shocks,” he said.
He said in the private sector, the relatively high level of household debt remained a source of macro-financial stability risk and would act as a constraint on household spending.
Record said the principal challenge to more rapid and inclusive economic growth lies in increasing labour productivity, which in turn depends on stronger human capital development.
“Malaysia’s score on the Human Capital Index (HCI) is 0.62, which is about as expected compared to other UMICs but well below that of its aspirational comparators,” he said.
He said Malaysia performed well on the child survival and years of schooling components of the HCI but did poorly relative to its economic peers in child nutrition and the quality of education.
“Key priorities are thus enhancing learning outcomes, reducing child under-nutrition and strengthening social protection systems to enable households to both invest in and protect human capital,” he said.
Meanwhile, acting chief economist for the EAP Region Andrew Mason said at the regional level, growth in developing EAP economies was expected to soften to six per cent this year and next year respectively from 6.3 per cent in 2018, largely reflecting global headwinds and a continued gradual policy-guided slowdown in China.
“While most of the EAP region managed to weather the deterioration of external conditions in 2018, the risk or conditions worsening would place additional pressure on policymakers despite most countries having reasonably sound economic fundamentals and robust domestic demand,” he said.
He said the World Bank had also reduced its forecast for global economy growth to 2.7 per cent this year from 2.9 per cent projected earlier in January this year on the back of challenging global conditions.
“Global growth is projected to slow to 2.7 per cent in 2019, reflecting decelerating activity in advanced economies and in many large emerging market and developing economies,” he said.
He said global trade had weakened further amid slowing global investment and manufacturing activity.
“While trade policy uncertainty has abated somewhat, global trade growth is expected to moderate further,” he added.
He said as growth prospects have softened, the tightening pace of international financing conditions had eased, providing some respite to countries with large external financing need needs. - Bernama