KUALA LUMPUR: There is ‘continued light’ at the end of 2017 for the Malaysian economy, which is expected to grow by 4.9 per cent – above the official projection of 4.3-4.8 per cent, says the World Bank.
However Malaysia must watch out for the global risks - increased protectionism, uncertainties about global policies on trade and interest rates, and the evolution of commodity prices.
While these are short-term risks outside of Malaysia’s control, “how you prepare for and react to them is entirely within your control”, remarked Dr Ulrich Zachau, who is the country director for Southeast Asia.
“Here, the best bet is to maintain a solid macroeconomic framework and focus on structural reforms to re-ignite productivity, innovation and a workforce with 21st century skills,” he said at the launch of the June Malaysia Economic Monitor edition.
The 4.9 per cent projection, which was an upward revision announced last week, takes into account the private and public investment through the large-scale projects, as well as stronger exports.
The Malaysian economy recorded a robust 5.6 per cent annualised growth in the first quarter of 2017.
On the supply side, turnaround in the agriculture sector due to better weather conditions was a key contributor to economic growth.
According to the MEM, the current account surplus is projected to narrow further to 1.6 per cent of GDP in 2017.
“While the improvement in global growth and external demand would provide a positive tailwind to the current account, this is expected to be partially offset by higher capital and intermediate imports as growth accelerates.”
The services deficit is also expected to remain at its current level, further lowering the current account surplus.
The World Bank also expects the current monetary policy to remain supportive for growth.
The inflation rate is projected to increase to 3-4 per cent in 2017 mainly in the first half of 2017 before gradually subsiding in the second half of the year.
On fiscal consolidation, it noted that the government’s commitment to achieving its deficit target of 3.0 per cent of GDP in 2017.
“The government is expected to continue to work on achieving efficiency in spending, including focusing on more targeted subsidies, and focusing on projects with higher impact, such as public infrastructure for development expenditure.“
The stabilisation of global commodity prices would benefit the government positively, and the Goods and Services Tax (GST) will provide diversification in revenue.
“The higher growth trajectory projected for 2017 opens up room to accelerate reduction in the fiscal deficit and opens the space to move fiscal policy into a more neutral stance.”
The government can now also undertake further reforms to improve public sector efficiency through reforming the civil service pension, gradually eliminating GST exemptions, and broadening the coverage of the personal income tax to further diversify the revenue base.