Malaysia’s Economy Continues To Expand Despite Slower World Economic Growth

KUALA LUMPUR, Oct 18 (Bernama) – Malaysia’s economy continued to expand, albeit at a moderate rate, during the review period of 2016-2017 as a result of slower world economic growth and modest global trade expansion in 2016. According to the Mid-Term Review of the Eleventh Malaysia Plan (2016-2020) released by the Ministry of Economic Affairs Thursday, as an open economy, Malaysia continued to face challenges related to external economic risks. The report was presented in Parliament Thursday by Prime Minister Dr Mahathir Mohamad. “These challenges include the moderation of commodity prices, the shifting of the US monetary and protectionist trade policies, China's economic rebalancing and geopolitical uncertainties. “Malaysia was considerably affected by the slowdown in world trade and commodity prices in 2016, but recovered in 2017, following the global economic rebound,” it said. The report said Malaysia's resilience and strong economic fundamentals, supported by diversification and structural transformation policies as well as a sound banking and financial sector, had allowed the economy to withstand the volatilities and register moderate growth, within the original gross domestic product (GDP) growth target of five to six per cent per annum. It said private investment continued to be the driving force of the economy, contributing 67.7 per cent of total investment of RM659 billion (US$1 = RM4.16) in current prices, while public investment contracted at an average rate of 0.2 per cent. Private consumption remained a mainstay of the domestic economy with an average growth of 6.5 per cent, driven by favourable labour market conditions and wage growth as well as other income-supporting measures, including bigger cash transfers, a double annual increment in civil servants’ salaries and reduction in personal income tax. In addition, it said the revision of the monthly minimum wage to RM1,000 in Peninsular Malaysia and RM920 in Sabah and Sarawak also contributed to the strong growth in private consumption. Public consumption, however, expanded slower by 3.2 per cent per annum, mainly due to public expenditure optimisation that led to lower spending on supplies and services. Meanwhile, the report highlighted that unlocking the potential of productivity has been underscored as a game changer in the 11MP, which led to the launch of the Malaysia Productivity Blueprint (MPB) in 2017 to boost labour productivity. Although the economy fully rebounded in 2017, it said the slowdown the previous year, affected the medium-term growth trajectory and posed an added challenge for Malaysia to meet the developed and inclusive nation goal in line with Vision 2020. The report also pointed out that a number of long-standing disparities and structural economic issues remain unresolved, despite the robust growth recorded during the review period. In giving an example, it said the economy is more dependent on traditional factor inputs and less on productivity to drive growth. “Investment is more focused on physical structures instead of machinery and equipment, which is crucial to boost the productive capacity of the economy. “Furthermore, many industries were still in the low-end to mid-range of the value chain for products and services, creating a limited number of high-income jobs, while the tight fiscal space continued to constrain public sector financing for development programmes and projects,” it added. -- BERNAMA