KUALA LUMPUR (April 13): Malaysia is projected to experience slower growth and lower government revenue in 2015 and 2016, according to the World Bank’s East Asia Pacific Economic Update released today.
The World Bank has also trimmed its growth projection for developing economies of East Asia to 6.7% in 2015 and 2016 from 6.9% in 2014.
In a statement on its website today, the World Bank said that economic growth would ease slightly in developing countries in East Asia and Pacific this year, even as the region benefits from lower oil prices and a continued economic recovery in developed economies.
In its East Asia Pacific Economic Update, the World Bank said China’s growth was expected to moderate to around 7% in the next two years compared with 7.4% in 2014.
It said growth in the rest of developing East Asia was expected to rise by half a percentage point, to 5.1% this year, largely driven by domestic demand, thanks to upbeat consumer sentiment and falling oil prices, in the large Southeast Asian economies.
It said several smaller economies, especially commodity exporters such as Mongolia, would see lower growth.
World Bank East Asia and Pacific regional vice president Axel von Trotsenburg said that despite slightly slower growth in East Asia, the region will still account for one-third of global growth, twice the combined contribution of all other developing regions.
“Lower oil prices will boost domestic demand in most countries in the region and provide policy makers a unique opportunity to push fiscal reforms that will raise revenues and reorient public spending toward infrastructure and other productive uses. These reforms can improve East Asia’s competitiveness and help the region retain its status as the world’s economic growth engine,” he said.
The World Bank said low global oil prices would benefit most developing countries in East Asia, especially Cambodia, Laos, the Philippines, Thailand, and the Pacific island countries.
“But the region’s net fuel exporters, including Malaysia and Papua New Guinea, will see slower growth and lower government revenues.
“In Indonesia, the net impact on growth will depend on how much a decline there will be for its coal and gas exports,” it said.
The report said the headwinds facing the world economy continued to pose risks to East Asia’s globally-integrated economies.
It said the recovery in high-income countries continues to be slow and uneven, and a downturn in the eurozone and Japan would weaken global trade.
It said higher U.S. interest rates and an appreciating U.S. dollar, along with diverging monetary policy paths across advanced economies, could raise borrowing costs, generate financial volatility and reduce capital flows to East Asia.
The report added that the continued strengthening of the U.S. dollar against other major currencies also could hurt highly-dollarized economies such as Cambodia and Timor-Leste.
World Bank East Asia and Pacific chief economist Sudhir Shetty said East Asia and Pacific has 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,” said Shetty.
The report said that in most of the larger East Asian economies, efforts to bolster revenues and restructure spending could help fill the gap in infrastructure investments and create more funding for social protection and insurance programmes, which are already under pressure amid rapid aging in the region, the report says.
In the major fuel exporting countries and Mongolia, fiscal consolidation is required, it said.
The World Bank said that lower oil prices, in particular, create an opportunity for governments to reduce fuel subsidies and raise energy taxes, the report says.
It said that across much of the region, fuel subsidies and related tax expenditures have strained public finances and weakened current accounts.
Some countries, including Indonesia and Malaysia, recently took steps to cut fuel subsidies, but Shetty said the momentum needs to be sustained and broadened, even if oil prices begin to recover.
World Bank growth forecast: Malaysia