World Bank cuts Malaysia’s 2018 GDP growth forecast again
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The World Bank has again revised downward its projection for Malaysia’s 2018 gross domestic product (GDP) growth to 4.7% from 4.9% after taking into account factors such the rigorous rationalisation of expenditure by the government and slowdown in private and public investment. It last cut the country’s GDP growth forecast in October, to 4.9% from 5.4%.
Malaysia’s third quarter GDP growth moderated to 4.4%, bringing about a nine-month expansion of 4.7%.
Despite a moderation in growth, the World Bank believes that the Malaysian economy remains resilient and continues to be anchored by private consumption, although it has been cooling down after the reintroduction of the sales and service tax.
The key drivers for private consumption are stable labour market conditions, cost of living aid and tax refunds payment.
Private investment in the manufacturing and commodity sectors are also expected to be sustained.
Speaking at the launch of the World Bank’s Malaysia Economic Monitor on Realising Human Potential Report, World Bank Group economist Shakira Teh Sharifuddin said Malaysia’s economic growth is projected to remain flat at 4.7% in 2019, with external factors such as current trade tensions and increased volatility in the financial and commodity markets expected to weigh on the overall economy.
In addition to the escalating trade tensions, monetary normalisation in advanced economies, high dependency on oil revenue and high level of public debt are seen as potential risk for the government.
The percentage of the federal government’s revenue to GDP has seen a steep decline between 2012 and 2018, falling from 21.4% to 16.2%. In 2019, the share of revenue to GDP is expected to be reduced further to 15.1%.
“Private investment in the manufacturing and commodity sectors are also expected to be sustained.”
This, Shakira said, leaves the government with limited space to respond to economic shocks.
In the near term, the government is expected to rigorously embark on fiscal consolidation measures with expenditure expected to decline to 18.1% of GDP from the 2018 estimate of 20.3%.
Shakira said that while the introduction of new taxes in the budget is welcomed, the government should relook the incentive mechanisms.
On another note, the World Bank stressed on the need for Malaysia to accelerate the development of its human capital if it wishes to join the ranks of a high-income nation.
While Malaysia, which ranked 55th out of 157 countries in the Human Capital Index, fared well in some areas, there is room for improvement in certain areas, noted the report.
It also states the prevalence of stunting among Malaysian children which affect more than one in five Malaysian children, a key indicator of malnutrition. In the absence of renewed efforts to develop human capital, a child born today in Malaysia will only reach a productivity level of 62%.
In terms of education, the 12.2 years spent by Malaysians in school only equates to the 9.1 years learning outcome of school goers in the highest performing system.
Questions & Answers
Q.What is the new forecast for Malaysia’s 2018 GDP growth?
What is the new forecast for Malaysia’s 2018 GDP growth?
The World Bank has revised its projection for Malaysia’s 2018 GDP growth to 4.7%. This is a further downward adjustment from a previous forecast of 4.9%, initially set at 5.4%.
Q.What factors led to the latest reduction in Malaysia's 2018 GDP forecast?
What factors led to the latest reduction in Malaysia's 2018 GDP forecast?
The World Bank considered the government's rigorous rationalisation of expenditure and a slowdown in both private and public investment. These factors contributed to the revised forecast.
Q.What key risks does the World Bank identify for Malaysia's economy?
What key risks does the World Bank identify for Malaysia's economy?
Escalating trade tensions, monetary normalisation in advanced economies, high dependency on oil revenue, and a high level of public debt are potential risks. The declining federal government revenue to GDP also limits response to shocks.
Q.What recommendations does the World Bank offer for Malaysia's long-term economic development?
What recommendations does the World Bank offer for Malaysia's long-term economic development?
The World Bank stresses the need for Malaysia to accelerate the development of its human capital to become a high-income nation. They also suggest relooking incentive mechanisms despite welcoming new taxes.
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