KUALA LUMPUR (April 24): In its April 2019 update, the World Bank is maintaining its forecast for Malaysia's 2019 gross domestic product (GDP) growth at 4.7%, with private consumption continuing to be the main driver of growth, albeit expanding at a more measured pace.
"Household spending will be buoyed by stable labour market conditions and income support measures such as the Cost of living Aid (Bantuan Sara Hidup). Gross fixed capital formation is expected to increase slightly, driven by the private sector, while public investment is expected to remain subdued in the near term.
"The external sector may be negatively affected by heightened uncertainty surrounding the global environment, particularly the possible escalation of US-China trade tensions," it said in its report today.
By 2020, the World Bank said Malaysia's economy is projected to expand at 4.6%, and the country is expected to achieve high income country status by 2024.
The World Bank issued its April 2019 edition of East Asia and Pacific (EAP) Economic Update today titled Managing Headwinds.
In the report, the World Bank foresees growth in developing EAP economies to soften to 6% in 2019 and 2020, down from 6.3% in 2018, largely reflecting global headwinds and a continued gradual policy-guided slowdown in China.
"Still, the region's economies weathered the financial markets volatility of 2018 relatively well largely due to effective policy frameworks and strong fundamentals, including diversified economies, flexible exchange rates, and solid policy buffers," it noted.
While trade policy uncertainty has abated, the report said growth is likely to moderate further.
However, it added that domestic demand has remained strong in much of the region, partly offsetting the impact of slowing exports.
On the outlook for Malaysia, the report noted that the fiscal deficit is expected to narrow to 3.4% of GDP in 2019 and subsequently to 3% in 2020.
"Near-term fiscal consolidation efforts are expected to be achieved primarily through rigorous expenditure rationalisation, with broad-based declines (in percentage of GDP) projected across major components of operating and economic development outlays.
"Monetary poverty is expected to continue its downward trend in 2019, with a projected decline to 1.4% based on the upper middle-income countries (UMIC) poverty line of US$5.5 (2011 PPP) per person per day. Several initiatives for low-income households, including the national B40 Health Protection Fund, a B40 insurance scheme and affordable housing initiatives are in the pipeline to improve both monetary and non-monetary wellbeing," it said.
In terms of risks and challenges, World Bank said the ongoing uncertainties surrounding the US-China trade tensions and shifts in global financial market sentiment pose downside risks to Malaysia's economy in the near term, due to the country's high degree of trade and financial integration.
"On the domestic front, the relatively high levels of government liabilities and increased dependency on oil-related proceeds could potentially constrain the flexibility of fiscal adjustment against future macroeconomic shocks. In the private sector, the relatively high level of household debt remains a source of macro-financial stability risk and acts as a constraint on household spending," it said.
World Bank said the principal challenge to more rapid and inclusive economic growth lies in increasing labour productivity, which in turn depends on stronger human capital development.
"Malaysia's score on the Human Capital Index (HCI) is 0.62, which is about as expected compared to other UMICs but well below that of its aspirational comparators," it said.
"Malaysia performs well on the child survival and years of schooling components of the HCI but does poorly relative to its economic peers in child nutrition and the quality of education. Key priorities are thus enhancing learning outcomes, reducing child under-nutrition and strengthening social protection systems to enable households to both invest in and protect human capital," it suggested.
The World Bank also reduced it forecast for global economy growth to 2.7% in 2019, from 2.9% projected earlier in January this year.
"Global conditions remain challenging in 2019. Global growth is projected to slow to 2.7% in 2019, reflecting decelerating activity in advanced economies and in many large emerging market and developing economies. Global trade has weakened further amid slowing global investment and manufacturing activity," it said.
"While trade policy uncertainty has abated somewhat, global trade growth is expected to moderate further. As growth prospects have softened, the tightening pace of international financing conditions has eased, providing some respite to countries with large external financing need needs," it added.