This article first appeared in The Edge Financial Daily on March 28, 2019

KUALA LUMPUR: The domestic economy is expected to expand by 4.3% to 4.8% in 2019, compared with 4.7% in 2018, driven by domestic demand amid the challenging global environment.

Nonetheless, the central bank cautioned that the domestic growth projection is subject to several downside risks, namely from global trade disputes, political uncertainty and sudden shifts in investor sentiment.

According to Bank Negara Malaysia’s (BNM) Annual Report 2018, domestic demand will remain the anchor of growth, underpinned by continued expansion in private sector activity.

“Private consumption growth is expected to moderate, but remain firm supported by stable labour market conditions and continued wage growth,” said BNM.

It anticipates private consumption to expand by 6.6% in 2019.

The central bank said the implementation of several government measures, to address the rising cost of living, is expected to further support consumption spending, adding that household spending will benefit from continued employment and income growth.

After recording a strong growth in 2018, household spending is expected to normalise closer to its long-term average of 6.7% for the period from 1990 to 2018, said BNM.

Notably, household spending in 2018 was buoyed by the zerorisation of the goods and services tax rate for three months, particularly on durable goods such as motor vehicles and furnishings, as well as food and beverages.

Meanwhile, private investment activity is seen to grow at 4.9% in 2019 compared to the slower pace of 4.5% in 2018. The growth was substantially faster at 9.3% in 2017. The growth will be supported by the implementation of ongoing multi-year projects, particularly in the manufacturing and services sectors, said BNM.

The central bank noted that the normalisation of destocking activities by firms after the strong demand during the tax holiday period in 2018 will serve as an additional support to growth.

Public sector expenditure, however, is expected to weigh on growth, said BNM.

The projected contraction in public investment by 7.1% will be due mainly to lower investment by public corporations following the completion of large-scale projects, while the expectations for a moderate growth of 1.2% in public consumption reflect the continued reprioritisation of government spending.