KUALA LUMPUR (Sept 26): The Asian Development Bank (ADB) has cut Malaysia’s  gross domestic product (GDP) growth forecast cut to 5% in 2018 from 5.3% forecast earlier.

In its Asian Development Outlook 2018 Update released today, ADB also lowered its forecast for Malaysia in 2019 to 4.8% from 5% earlier.

Meanwhile, inflation is forecast to moderate to 1.4% this year from 2.6% projected earlier but rise to 2% in 2019 from the 1.8% forecast previously.

It said investment in Malaysia was weaker than expected in the first half amid a transition to a new government, and policies going forward are expected to favor consumption over investment.

ADB said despite strong first-half export growth in Malaysia, a transition to a new government and a resulting shift in policy priorities put a damper on public and private investment.

It said this was aggravated by weaker agriculture adversely affected by bad weather and falling international palm oil prices.

“Consumption in Malaysia will likely be spurred in Q3 of 2018 as a new sales and services tax replaces a broader goods and services tax following a 3-month sales tax holiday,” it said.

However, the bank said despite a very mild GDP growth slowdown, retail sales remained strong in Malaysia.

“In Malaysia, uncertainty connected with a national election was resolved in May with a change in government, causing the consumer index to soar to 133 in June, the highest in 21 years,” it said.

The ADB said inflation in Malaysia reached record lows with the reintroduction of fuel subsidies and a 3-month tax holiday following the suspension in June of a 6% goods and services tax and before its replacement by a lower sales and services tax.

It said higher international energy prices are seen to boost exports despite downward trends in palm oil prices.

“Meanwhile, swelling demand for consumer imports is likely to keep imports high, reducing the overall current account surplus,” it said.