World Bank cuts Malaysia’s 2018 GDP growth forecast again

KUALA LUMPUR: 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 today, 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%.

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.

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