KUALA LUMPUR: The economy picked up pace in the final quarter of last year at an annualised 4.5 per cent, bringing last year’s overall growth to 4.2 per cent.

Private sector activities were the main drivers in the period between October and December last year, said Bank Negara Malaysia in a statement yesterday.

Growth was driven by the manufacturing and services sectors, while exports contributed positively as real exports expanded at a faster rate than real imports.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the jump in export growth in November and December augured well for the economic outlook this year.

“Private investments also recorded a stronger growth and the ministry will need to be more aggressive in attracting trade and investment activities,” he said, adding that this included stepping up domestic investments.

A drop in public expenditure was due to the rationalisation of spending on supplies and services and emoluments.

The central bank said this year’s growth would be sustained by domestic demand against a backdrop of external uncertainties.

Not only would consumption be supported by wage and employment growth but there would also be additional impetus coming from government measures to support disposable household incomes.

Investment activities would continue to be anchored by the implementation of infrastructure projects and capital spending in the manufacturing and services sectors, it added.

The official growth forecast for the economy is between four and five per cent this year.

Credit Suisse’s Michael Wan said the key drag to gross domestic product (GDP) in the fourth quarter of last year was government consumption due to the cut-back on spending to meet fiscal deficit targets.

But the research house is more optimistic about this year, projecting a 4.5 per cent growth.

“The recent rise in oil prices should help boost the government’s revenues, reducing the need to cut spending further. As such, we will unlikely see the same drag on growth as we have seen thus far.”

Major public infrastructure projects such as the Mass Rapid Transit 2, Light Rail Transit 3 and the Pan-Borneo Highway should support GDP and investment activities this year.

“The drag on private sector activity from lower commodity prices is likely over as crude oil, palm and rubber prices have risen,” he said, adding that this should boost rural incomes while also helping commodity-related investments and producers, over time.

Alliance Bank chief economist Manokaran Mottain said with the government’s commitment to fiscal consolidation and the volatility in external trade, domestic demand would be the main driver of growth this year.

“Unfortunately, the latest consumer sentiments index tracked by Malaysian Institute of Economic Research showed deterioration in the fourth quarter as indicated in the soft labour market — unemployment rate averaged 3.5 per cent last year (above 2010-2015 average of 3.1 per cent).”

The research house also expects price pressures to rise and the headline inflation growth to be higher at three per cent this year from 2.1 per cent last year.

Julia Goh of UOB Bank expects a slight uptick to be supported by domestic demand and turnaround in net exports.

“All key sectors are projected to expand this year, including agriculture, which is aided by recovery in crude palm oil output and a low base effect. However, Malaysia’s high trade dependence and strong financial linkages and heightened policy uncertainty from abroad would exert downside risks to growth,” she added.

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