Malaysian Economy To Sustain Growth Momentum, Spurred By Private Sector

KUALA LUMPUR, March 27 (Bernama) -- The Malaysian economy is expected to sustain its growth momentum this year, propelled by private sector activity, with private consumption projected to expand by 6.6 per cent from a preliminary 8.1 per cent in 2018. As for private investment, the segment is projected to register a growth of 4.9 per cent in 2019 compared with a preliminary 4.5 per cent of 2018, with the ongoing multi-year projects continuing to support investment activity, particularly in the manufacturing and services sectors, Bank Negara Malaysia (BNM) said in its 2018 Annual Report released Wednesday. “The ongoing multi-year projects would continue to support investment activity, particularly in the manufacturing and services sectors, including capital spending in the electrical and electronics (E&E) and primary-related manufacturing sub-sectors, as well as the transport, storage and communication services sub-sectors,” the report said. Looking from the demand side, private sector spending is seen as a factor that would continue to drive growth, and with the lapse of one-off factors in 2018, private consumption growth is expected to moderate but remain firm. On the public sector activity, the central bank revealed that public sector expenditure is expected to weigh on growth amid the completion of large-scale projects by public corporations and continued reprioritisation of government spending. "Public investment is projected to contract by 7.1 per cent due mainly to lower investment by public corporations following the completion of large-scale projects, whilst capital spending by the government is expected to be mainly channelled towards upgrading and improving public infrastructure and amenities," the report said. The public consumption is expected to expand at a moderate pace of 1.2 per cent, attributable to a decline in spending on supplies and services amid stable growth of emoluments. This is in line with the government’s continued commitment to rationalise non-critical spending without affecting public service delivery and to increase efficiency through cost reduction in the public sector. However, in general, the Malaysian economic growth would also be supported by gradual recovery from the unanticipated commodity disruptions in 2018, which also benefits the manufacturing sector and trade activity. In addition, output from new manufacturing production facilities that begin operating in 2019 will lend further support to growth, and these facilities include large oil refinery and petrochemical facilities, as well as E&E, chemicals and rubber plants. Not only that, the bank believed the normalisation of destocking activities by firms will serve as an additional support to growth in 2019, which is partly due to firms readjusting their inventories after the strong demand during the tax holiday period in 2018, which led to firms drawing down from their inventories. "To add, E&E firms which had large stock drawdown towards the end of 2018 in anticipation of weak demand, are less likely to have another significant drawdown in their inventories," BNM said. Narrow it to performances by industry, BNM revealed that volatility in the global oil prices could also affect export performance and mining sector investment and re-occurrence of the commodity supply disruption, partly from unanticipated weather patterns, could affect the recovery in the mining and agriculture sectors. As for the property sector, the oversupply situation could dampen activity in the construction sector, but the strong fundamentals and the diversified nature of the economy will help Malaysia weather these risks and vulnerabilities while preserving macroeconomic and financial stability. Of the challenges that could pose some risk to the Malaysian economy would be derived from global environment whereby unresolved trade tensions between the US and China, and a slower-than-expected global growth would affect Malaysia primarily via the trade and investment channel. The central bank reiterated that policy measures such as the price ceiling on retail fuel prices, minimum wage adjustment and targeted cash transfers will lend further support to household expenditure. “Household spending is expected to normalise closer to its long term average of 6.7 per cent,” the bank said. The surveys conducted for employers indicated that salary increments are expected to be sustained between 4.9 per cent to to 5.2 per cent in 2019, while the unemployment rate is projected to remain relatively unchanged at 3.3 per cent to 3.5 per cent compared with 3.4 per cent in 2018. Overall, the Malaysian economy is expected to sustain its growth momentum in expanding between 4.3 per cent and 4.8 per cent in 2019 compared with 4.7 per cent in 2018 amid the backdrop of a challenging global environment. As for global economic growth, the current year's global economy is projected to moderate towards its long-term trend, characterised by slower growth in both advanced and major emerging economies. Uncertainty is likely to remain elevated, given the persistence of key risks, notably from global trade disputes, political uncertainty and sudden shifts in investor sentiment of which these risks will pose headwinds to growth. "Moderating investments and external demand will affect overall growth, for instance, in the US, fiscal policy will provide less support, while the accumulated effects of gradual monetary policy normalisation are expected to have an impact on economic activity," it said. BNM cited the US fiscal policy, Brexit prolonged uncertainty, China's ongoing structural reforms to rebalance its economy, and unresolved trade disputes as factors that have affected global growth. However, proactive counter-cyclical monetary and fiscal policy interventions should help forestall the risk of a sharp slowdown in growth, it added. "The uncertain pace of the US monetary policy normalisation could heighten financial market volatility across emerging market economies, leading to volatile two-way capital flows and currency fluctuations. Narrowing to the Asian economies, BNM said growth will likely moderate despite stable domestic demand, as exports react to the slowdown in the advanced economies, as well as China. Lower crude oil prices will reduce the energy import bill and pressure on inflation, which will support higher spending especially in net oil importing economies, with some economies benefitting from country-specific tailwinds. -- BERNAMA