Malaysia’s economic growth seen slowing to 4.4% in 2016 — World Bank

by **Cals** Sat 02 Jul 2016, 03:30

Malaysia’s economic growth seen slowing to 4.4% in 2016 — World Bank

By The Edge Financial Daily / The Edge Financial Daily | July 1, 2016 : 10:05 AM MYT

This article first appeared in The Edge Financial Daily, on July 1, 2016.

KUALA LUMPUR: The World Bank expects Malaysia’s gross domestic product (GDP) growth to decelerate to 4.4% this year compared with 5% in 2015 amid the anticipated gradual deceleration in private consumption due to a softer labour market and continued fiscal consolidation.

However, the domestic economy is likely to pick up slightly next year at 4.5% and 4.7% in 2018.

It also predicts that the country’s overall export growth to remain stagnant going forward, due to low commodity prices and the weak outlook for the US and China.

The dampened demand for commodities resulted in a 17.2% quarter-on-quarter decline in exports for the first quarter of 2016 (1Q16), the World Bank noted in its Malaysia Economic Monitor report released yesterday.

“Private investment growth is expected to moderate given a less optimistic business sentiment, and subdued external demand due to lower commodity prices and low and uneven growth in the global economy.

“Subsequently, economic growth is expected to grow at 4.5% and 4.7% in 2017 and 2018, respectively, as global economic growth is expected to accelerate further and commodity prices recover moderately,” said World Bank.

The report pointed out that Malaysia faces risks, especially from external developments including the uneven growth in the euro area, slow growth in Japan and unexpected economic recovery in the US.

“In addition, the ongoing rebalancing in China’s economy and unexpected shocks to that economy as part of this rebalancing process may affect the Malaysian economy, as China remains a major trade partner of Malaysia (13% of total exports).

“While the manufacturing sector is expected to continue to contribute positively to exports, the fragile status of the global economy could affect overall demand for Malaysia’s exports and commodity prices,” said the World Bank.

Besides external issues, the bank said domestic issues, such as the lingering discourse surrounding 1Malaysia Development Bhd, rising cost of living and the weakening of the ringgit, could impact consumer confidence, thus slowing down private consumption.

For 2016, the bank expects private consumption to be the main driver of economic growth, but at a slower pace of 5.7% from 6% in the previous year, amid the softer labour market and the ongoing adjustments due to the higher cost of living.

Private investment is also expected to grow at a slower pace, amid the uncertain global environment, with gross fixed capital formation to moderate to 3.6% in 2016, from 3.7% in 2015.

On the country’s exports, the World Bank said prospects for major advanced economies have deteriorated amid weak global trade and manufacturing activity.

“Commodity exports will continue to be hampered by low commodity prices, although they are expected to stabilise.”