KUALA LUMPUR: The Malaysian economy is projected to grow between 4.3 per cent and 4.8 per cent this year, mainly supported by the gradual recovery from the unanticipated commodity disruptions the year before, according to Bank Negara Malaysia.

The central bank, in its 2018 annual report, expects headline inflation to average 0.7 per cent to 1.7 per cent (2018: one per cent), with the projection taking into account some cost pass-through from domestic cost factors.

Bank Negara said employers surveys indicated that salary increments were expected to be sustained between 4.9 per cent and 5.2 per cent this year.

The unemployment rate is projected to remain relatively unchanged at 3.4 per cent, thus enabling growth in private sector spending and consumption.

Policy measures such as the price ceiling on retail fuel prices, minimum wage adjustment and targeted cash transfers will lend further support to household expenditure.

Unresolved trade tensions between the United States and China, and a slower-than-expected global growth will affect Malaysia primarily via the trade and investment channel, the central bank said.

The uncertain pace of the monetary policy normalisation in the US could heighten financial market volatility across emerging market economies, leading to volatile two-way capital flows and currency fluctuations.

“Volatility in the global oil price could also affect export performance and mining sector investment, but on the domestic front, a re-occurrence of the commodity supply disruption, partly from unanticipated weather patterns, could affect the recovery in the mining and agriculture sectors.”

Bank Negara said Malaysia’s strong fundamentals and diversified nature will help it weather these risks and vulnerabilities while preserving macroeconomic and financial stability.

These include a healthy labour market, stable inflation rate, continued surplus in the current account of the balance of payments, deep financial markets, as well as a strong financial sector.

Exchange rate flexibility and sufficient level of international reserves would enhance the economy’s capability to withstand external shocks, it added.

Bank Negara said fiscal policy in 2019 aimed to strengthen the government’s position by pursuing gradual fiscal consolidation, paring down debt and liabilities as well as promoting economic inclusiveness.

The path towards fiscal consolidation is anchored by several key reform initiatives with the first being that the government is committed towards enhancing expenditure effectiveness in the public sector through the implementation of zero-based budgeting and the announcement of the Government Procurement Act.

Second, priority was also given to diversify and broaden the revenue base, with the formation of the Tax Reform Committee and thirdly the establishment of a Debt Management Office and pledged to adopt accrual accounting by 2021.

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