The Asian Development Bank expects Malaysia’s gross domestic product (GDP) growth to pick up this year and next but to remain well below the 5.3% average rate the country achieved in 2011–2015, The ADB’s Asian Development Outlook 2017 report released today said firmer growth in the major industrial economies and a mild recovery in domestic investment are likely to lift GDP growth to 4.4% this year and 4.6% in 2018.
It said the outlook for private fixed investment is improving somewhat with higher prices for hydrocarbons, recovery in agriculture, and better prospects for semiconductors. “However, concern over possible global trade disruption and the impact of the normalisation of US monetary policy on capital flows to developing countries [are] likely to restrain recovery in investment.
“A pipeline of large infrastructure projects — such as the Pan Borneo Highway, the Pengerang refinery and petrochemical plant, mass rapid transport projects in Kuala Lumpur, and the East Coast rail link and high-speed rail line to Singapore — should stimulate both public and private investment,” it said.
The report said as for net external demand, its drag on GDP growth is forecast to diminish this year unless global trade is seriously disrupted.
ADB’s report said private consumption is expected to grow this year at around last year’s pace. “Rising wages are seen to underpin household spending, as are government measures to bolster incomes, including tax breaks, higher cash transfers to lower-income groups, and a reduction in mandatory employee contributions to the national retirement fund. “Recovery in agriculture and rural subsidies will support rural incomes,” it said.
The report, however, highlighted that dampeners on consumption spending include high household debt, which equals nearly 90% of GDP, and lacklustre consumer confidence. By sector, it said growth in services will benefit from rising inbound tourism aided by the depreciation of the ringgit.
“In a positive sign for industry, the purchasing managers’ index indicated in February 2017 that the slowdown in manufacturing might be ending. “Manufacturers reported that month that they raised production for the first time in almost two years. “Demand for semiconductors will get a lift from an increase in book-to-bill ratios in North America and Japan and the launch of new mobile phone models,” it said.
The report said agriculture is forecast to recover this year, assuming the weather improves. It also said natural gas production is projected to rise, but oil output will likely decline as oil fields age and because of an international agreement by oil producers to temporarily trim output. Work on public infrastructure and affordable housing should give a helping hand to construction. The report pointed out that higher fuel prices, cuts to subsidies, and a weaker ringgit are expected to push prices up.
Inflation is forecast to rise to 3.3% in 2017 and then subside to 2.7% with the fading of the base effect from lower prices last year. Inflation averaged 3.9% year on year in the first two months of 2017. “In March 2017, the central bank projected that higher global commodity and energy prices, and the impact of ringgit depreciation, would lift inflation to 3%–4% in 2017. “The central bank added, however, that it did not expect these inflationary factors to have significant spillover into broader price trends, and that core inflation should increase only modestly,” it said.
The report said a significant risk to the outlook is potential disruption to global trade because Malaysia is closely integrated into the world economy. “The main export markets are, in descending order, Singapore, China, the US, the European Union, and Japan. “Sudden tariff hikes by major partners would hamper the modest strengthening now forecast for this trade-dependent economy,” it said.