KUALA LUMPUR: The government's decision to reduce its spending will affect gross domestic product (GDP) in the short term, said Allianz SE economist Michael Heise.
He, however, said the move would enable Malaysia to secure stability and resilience in the long run.
Heise said high spending in previous years should also be reduced, allowing the country to have a balanced budget.
"The country will experience economic instability as a result of the government's move in the short to medium term, but it requires stability and credibility in the long run," he said after presenting the Allianz 2018 World Wealth Report in Kuala Lumpur yesterday.
Also present was chief operating officer of Allianz Malaysia Bhd Sean Wang.
Heise suggested the government to reduce trade dependency with China and the United States (US), and seek new trading partners.
The trade war between the two world's largest economies, he said, was increasingly complicated, impacting and still a major determinant of the country's economic performance in the future.
He said although some of the major US companies might move to other countries including Malaysia, the benefits would be diminished by the demand from the two superpowers of the economy.
"The US Federal Reserve is also expected to not aggressively increase its interest rates next year as they have reached a high level this year.
"This will slow the outflow of capital funds from new emerging markets including Malaysia, giving time for correction in the coming years.
"Hence, it is important for Asian countries in particular Malaysia to find new trading partners that can guarantee free and open trade. This is to reduce dependence and to ensure the country's economy remains stable, especially in exports as well as to increase investment and ensure trade in good condition," he said.
The Allianz 2018 World Wealth Report is a study of the assets and conditions of household debt in more than 50 countries.
The report ranked Malaysia 35th on the list of richest countries based on per capita financial assets for 2017, up one ladder from 2016.
The growth of private household financial assets was at 8.6 per cent in 2017, compared to six per cent from 2013 to 2016.
Heise said growth drivers were insurance and pension assets with an additional 10.6 percent, making it the most important asset class and reflecting the strength of the employment pension scheme.
Malaysia’s household debt to GDP ratio was 84.4 per cent in 2017 compared with 89 per cent in 2015.