Friday 29 Mar 2024
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KUALA LUMPUR: Malaysia’s growth is expected to slow to 4.7% this year before normalising to 5% in 2016, while its current account will remain in a small surplus, according to the World Bank.

In December last year, the bank revised down its 2015 forecast for Malaysia to 4.7% from 4.9%.

In its East Asia Pacific Economic Update, April 2015 released yesterday, the World Bank said as a net fuel exporter, Malaysia will see slower growth and lower government revenues this year.

“Further decline in oil prices is the key risk to near-term growth, fiscal and external accounts. Although the government announced a slew of expenditure cuts to remain on a consolidation path, over a fifth of revenues depends on oil, including a yearly dividend from Petroliam Nasional Bhd (Petronas),” it said, noting the national oil company would be hard-pressed to maintain dividends if it were to continue with its large investment programmes.  

On inflation, private consumption is expected to moderate on tighter credit and a small impact from the introduction of the goods and services tax, before rebounding in 2016.

“In the near-term, falling palm oil revenues (dampened by oil prices and the floods in late 2014) will pose a challenge to the livelihoods of smallholders.”

“Labour markets are expected to remain robust but not buoyant, in-line with economic performance. Therefore, household income growth will remain on an upward, if somewhat slower, trend,” said the World Bank.

The report also stressed the need for productivity-enhancing reforms to support long-term growth and boost shared prosperity, including reducing inequality and boosting incomes at the bottom of the distribution hinge and reforming the education system without increasing public spending.

Meanwhile, the World Bank trimmed its growth forecasts for developing economies of East Asia to 6.7% in 2015 and 2016 from 6.9% in 2014, even as the region benefits from lower oil prices and a continued economic recovery in developed economies.

In its report, the World Bank said lower oil prices, in particular, create an opportunity for governments to reduce fuel subsidies and raise energy taxes.

Across much of the region, fuel subsidies and related tax expenditures have strained public finances and weakened current accounts. Some countries including Malaysia recently took steps to cut fuel subsidies, but World Bank chief economist for East Asia and Pacific Sudhir Shetty said the momentum needs to be sustained and broadened, even if oil prices begin to recover.

Shetty also said East Asia and Pacific have thrived despite an unsteady global recovery from the financial crisis, but many risks remain for the region, both in the short and long run.

“To address these risks, improving fiscal policy is key. With low oil prices, countries — whether oil importers or exporters — should reform energy pricing to usher in fiscal policies that are more sustainable and equitable,” he said.

 

This article first appeared in The Edge Financial Daily, on April 14, 2015.

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