How will our economy fare in 2020?

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  • Economic growth at 4.8% in 2020 vs 4.7% in 2019
  • Only 1% growth in exports in 2020
  • Current account surplus to narrow to 1.9% of GNI
  • 2% inflation in 2020, lifted by the introduction of targeted fuel subsidy
  • Unemployment rate to remain healthy at 3.3% in 2020

Malaysian economy to grow at 4.8% in 2020 vs 4.7% in 2019

Malaysia’s real Gross Domestic Product (GDP) is expected to grow by 4.8% in 2020, which is slightly stronger than the pace of 4.7% in 2019.

The stronger growth is underpinned by resilient domestic demand, particularly household spending thanks to stable labour market and low inflation.

Nevertheless, in the Economic Outlook 2019/20 report, the Ministry of Finance (MoF) warned that despite the anticipated expansion, external uncertainties may pose downside risks to growth prospects.

Private sector expenditure will remain the key growth driver in 2020, with private consumption and investment rising 6.9% and 2.1%, respectively.

“Private investment is expected to grow at a slower pace in 2019 and gain traction in 2020, following the resumption of infrastructure projects coupled with ongoing capital spending in the services and manufacturing sectors.

“Favourable private sector expenditure activity will offset the impact of lower public expenditure in 2019. However, economic growth is expected to rebound in 2020 with improvement in public corporations’ capital outlays,” read the report.

Public sector expenditure is expected to rebound to positive growth of 0.8% in 2020 after registering 1.8% decline in 2019, largely driven by the acceleration of projects towards the tail-end of the Eleventh Malaysia Plan coupled with the revival of strategic projects.

In line with the fiscal consolidation path, MoF said the public consumption is projected to remain moderate at 1.5% in 2020, which is lower compared to 2% in 2019.

Only 1% growth in exports in 2020

KUALA LUMPUR: Exports are expected to grow at 1% in 2020 amidst external headwinds. The pace is slower than the estimated 2.7% growth in imports, according to the Ministry of Finance (MoF).

The MoF in its Economic Report 2019/20 released today said the moderate expansion in exports in 2019 is in line with the slowdown in global economic and trade performance, and that a recovery in global trade activities is projected for 2020.

It added that the current account surplus in 2019 is projected to widen following the increase in the net exports of goods and services.

However, in 2020, the current surplus is expected to narrow underpinned by rising imports coupled with widening deficits in services and income accounts,” read the report.

This will result in goods surplus to narrow to RM123.4 billion in 2020, which is 5.8% lower compared with RM131 billion expected in 2019.

Malaysia’s current account surplus to narrow to 1.9% of 2020 GNI

Malaysia's current account surplus is expected to narrow to RM29 billion or 1.9% of gross national income (GNI) in 2020, compared with RM43.4 billion or 2.9% of GNI in 2019, as import growth outpaces exports.

This represents a 33.18% decline in current account surplus on-year comparison in 2020.

Imports for 2020 are expected to grow by 2.7%, outpacing the exports’ estimated growth of 1% in 2020. This will result in goods surplus to narrow to RM123.4 billion in 2020, which is 5.8% lower compared with RM131 billion expected in 2019.

Meanwhile, the service account is projected to record a wider deficit of RM25 billion in 2020, compared with RM21.1 billion in 2019, mainly on higher deficits in transportation and other services accounts.

The deficit in the transportation account is projected to widen to RM28.3 billion from RM27.1 billion in 2019, following continued dependency on foreign transport and trade-related services in line with the improvement in trade activities.

The deficit in other services accounts is expected to widen due to higher imports of construction and professional services backed by the revival of strategic projects.

Meanwhile, the surplus in the travel account is expected to increase to RM27.1 billion, higher than RM26.1 billion in 2019, driven by higher tourist arrivals.

2% inflation in 2020, lifted by the introduction of targeted fuel subsidy

With the introduction of targeted fuel subsidy for next year, inflation is expected to expand 2% in 2020, which is higher than 1.9% in 2019.

The expansion is also expected to be partly attributed to dissipating base factors and the implementation of departure levy.

The inflation outlook will be subjected to foreign exchange rate movements and uncertainties in the global oil prices due to trade and geopolitical tension, said Ministry of Finance

In 2019, the CPI is expected to grow 0.9% partly attributed to the imposition of departure levy ranging from RM8 to RM150 commencing in September this year.

Nonetheless, the introduction of the sugar tax in July is expected to have minimal impact on the overall inflation given its relatively smaller weightage in the CPI basket.

Meanwhile, the producer price index (PPI) is expected to be higher in 2020 in tandem with diminishing base effect and normalisation of production activities.

The PPI fell 2% for the period between January and August in 2019, mainly weighed down by a contraction in agriculture, forestry and fishing (-10.3%), mining (-3.8%) and manufacturing (-1.1%) sectors. This was due to weaker commodity prices, particularly crude oil and crude palm oil (CPO), which led to lower production costs.

Unemployment rate to remain healthy at 3.3% in 2020

The unemployment rate will remain under a full employment condition, with the jobless rate sustaining at 3.3% in 2020. The unemployment rate is similarly stated in 2019.

With more job opportunities expected, the total number of employed persons is projected to increase to 15.1 million in 2019 and 15.3 million in 2020.

Of the total employment in 2020, about 62.1% will be recruited in the service sector, 16.2% in the manufacturing sector and 12.2% in the agriculture sector.

Imports to expand by 2.7% in 2020

Malaysia’s import for 2020 is expected to grow by 2.7% after a 2.5% decline in 2019, in line with higher imports of intermediate, capital and consumption goods.

Imports of intermediate goods, which account for 55%, are expected to grow 3.9% attributed to expansion in the manufacturing sector, particularly E&E, petroleum, chemical, rubber and plastic products.

Imports of capital goods are projected to increase by 4.4% in tandem with improving investment activity in new and on-going projects.

Meanwhile, imports of consumption goods are expected to expand 2.5% following higher demand from households and tourists.