Malaysia’s economy is expected to continue to grow this year, albeit at a slower pace, as the world continues to face torrid uncertainties, largely from economic isolation and possible trade wars between nations.
Malaysia posted a GDP growth of 5.9% in 2017 and analysts have projected the economy to grow between 4.7% and 4.9% this year. The market is expecting Malaysia to deliver a growth of 4.7% for 2018.
Economist Dr Muhammed Abdul Khalid said the country’s economy will unlikely reverse into recession nor “screech to a halt”.
“I don’t expect a recession this year, and the economy will continue to expand, but at a slightly slower pace,” he told The Malaysian Reserve recently.
But he admitted Malaysia is exposed to global shocks due to the country being a trading nation.
“Of course, we have to admit that there will be an impact from the global slowdown on the Malaysian economy given that we rely heavily on trade.
“As major economies are likely to grow at a slower pace, it is not surprising that the growth of ASEAN economies as a whole will moderate in tandem,” he added.
Malaysia’s high growth in 2017 was driven by huge spending with billions injected into infrastructure projects, largely through borrowings.
With the substantial spending cut for infrastructure as Putrajaya seeks to restore some normalcy to the country’s finances, growth would need to rely on the public sector.
The larger worries include the tiff between China and the US, which could shave off as much as 1.5% of the country’s GDP number if it gets to the extreme end. Both Beijing and Washington are among Malaysia’s two biggest trading partners.
Muhammed, however, does not expect the economic slowdown to have a huge impact on wages and the labour market.
“What does that mean to an average Malaysian? What will be the impact? One, there could be some repercussion on wages. Second, there could be an unavoidable, though minimal, impact on the labour market,” he said.
The government’s immediate concern, according to Muhammed, who is also an economic advisor to the prime minister, is to ensure that the job market is relatively preserved, and job creation is intensified. This, he believes, will help protect the rakyat’s financial health.
The World Bank has said that the government has to address challenges around human capital, productivity and governance.
“However, we have seen a lot of movement in the 11th Malaysia Plan Mid-Term Review for 2019-2020, whereby the government is setting out new plans to tackle those issues over the next few years,” World Bank Group’s macroeconomics, trade and investment lead economist Richard Record had said.
Last November, Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus said the country’s economy is expected to grow 4.9% this year, with private sector activity to remain the key driver of growth amid the reprioritisation of public sector expenditure.
Muhammed said the slowdown in the economy is expected to be partly mitigated by stronger business and consumer expenditures, stemming from the Goods and Services Tax and income tax refunds to be disbursed by the government.
“Of course, if the refund is to be spread over time, our fiscal deficit figure will be better.
But stronger economic activity to be generated from higher spending by consumers and businesses would outweigh the negative impact of having a higher fiscal deficit.
“More importantly, the government must honour its commitment. The money belongs to taxpayers, and the government should return it.”
– The Malaysian Reserve