KUALA LUMPUR: Household spending will remain the key driver of Malaysia’s economic growth through to 2019, amid moderate public spending, according to The Institute of Chartered Accountants in England and Wales’ (ICAEW) latest report on Southeast Asian economic outlook.
Malaysia’s gross domestic product (GDP) is expected to expand 4.9 per cent for the remainder of 2018, backed by a multi-year high of eight per cent year-on-year surge in household spending, ICAEW said today.
“Consumer sentiment registered highs following the new government’s abolishment of the Goods and Services Tax (GST) and re-introduction of fuel subsidies. However, public spending is expected to moderate as the government reviews major infrastructure projects and undertakes plans to control expenditure and improve fiscal deficit,” it added.
Across Southeast Asia, the growth is expected to cool in the second half into 2019, easing to 5.1 per cent this year from 5.2 per cent in 2017, as moderating Chinese import demand and escalating US-China trade tensions dampened exports and business investment.
Economic growth edged lower in the second quarter of 2018 across most of the Southeast Asian economies, with average GDP growth for the region easing to 5.2 per cent year-on-year, down from 5.4 per cent in the first quarter.
ICAEW said although the reinstated Sales and Services Tax (SST) would go some way towards improving the government’s bottom line, the expected revenue from SST might not be sufficient to bridge the revenue gap caused by the removal of GST.
In the short term, the government had fiscal room as oil tax revenues were likely to reach US$75 per barrel on average in 2018, compared to previous expectations of US$52 per barrel.
In the long term, further expenditure cuts and a new source of revenue generation would be needed in order for the government to realise the government’s commitment to lowering fiscal deficit beyond 2018, ICAEW added.
Elevated US-China trade tensions are also expected to further challenge Malaysian exports.
“While the US is likely to remain focused on trade with China, higher US tariffs on Chinese imports will have an impact as Malaysia indirectly exports a large volume to the US via China,” it said.
Sian Fenner, ICAEW economic advisor and Oxford Economics Lead Asia economist, said: “Amid increasing global headwinds, including escalating US-China trade tensions, and the added pressures of a stronger US dollar and rising US interest rates, we expect macroeconomic policies in Malaysia to remain supportive of domestic demand. This is against the backdrop of cooling Chinese import demand and increased trade protectionism.”
Among the regional economies, Vietnam is expected to continue to outperform the region with a GDP growth 6.7 per cent in 2018 and 6.3 per cent in 2019. Singapore is expected to see a more discernible slowdown, reflecting its heavy dependence on exports (around 174 per cent of GDP).
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