KUALA LUMPUR – The World Bank has maintained its 2024 economic growth outlook for Malaysia at 4.3% in its East Asia and Pacific Economic Update for April, on expectation of a likely recovery in global growth and the easing of restrictive financial conditions.
The bank’s East Asia and Pacific chief economist Aaditya Mattoo said domestic demand would continue to anchor growth, and Malaysia was also set to benefit from the recovery in the export market.
Private consumption is expected to grow by 5.2% from last year’s 4.7%, driven by supportive labour market conditions and continuous household-income support measures.
In addition, gross exports are projected to rebound by 4.8% from a contraction of 7.9% last year in tandem with the expected recovery in global trade.
“Given Malaysia’s exposure to China, the slowing growth in China is going to be a problem.
“But in general, Malaysia is going to benefit from what is referred to as the technology cycle, which boosts electrical and electronics exports; and it is already benefiting from the significant relocation of semiconductor production from China,” he said during a virtual press conference today.
According to Mattoo, China’s growth is projected to moderate to 4.5% this year from 5.2% in 2023 amid near-term problems such as high debt and a weak property sector, on top of longer-term challenges such as its ageing population and trade frictions.
Slowing China’s growth is set to drag economic expansion in the developing East Asia and Pacific region, which is forecast to decline to 4.5% in 2024 from 5.1% last year.
Excluding China, growth in the region is estimated to pick up to 4.6% this year, up from 4.4% in 2023.
In the longer term, Mattoo expressed optimism that China’s growth would be sustained and higher once it had negotiated these difficult transitions.
As for Malaysia, he said the nation had tremendous potential to improve its economy and should not be satisfied with the current growth rate.
“Malaysia is a country which has underachieved and has tremendous potential,” he said, stressing that the country had to address rising household debts, which were squeezing consumption.
Mattoo said household and corporate debts stood at more than 70% and 80% of the gross domestic product, respectively.
“Malaysia is a relatively open economy and therefore high global interest rates do affect Malaysia,” he said.
According to the April update, private and public debts have increased significantly as a share of GDP in most East Asian and Pacific economies.
A 10-percentage-point increase in private debt to GDP is associated with a 1.1-percentage-point decline in investment growth.
China, Malaysia and Thailand also recorded much higher household debt compared to the levels in other emerging markets.
Furthermore, the economic update highlighted that heightened policy uncertainty had hurt investment in East Asian and Pacific countries.
Policy uncertainty was high in Malaysia and Thailand but has declined recently, the World Bank said in the update.
Malaysia is also facing continuous challenges in narrowing fiscal space for the government, it said.
The government recently announced its plan to discontinue the pension scheme for new civil servants and its intention to review price controls and subsidies in 2024.
It has indicated that targeted subsidies to the public will be given through direct cash transfers.
On the revenue front, the World Bank said the government had introduced several measures during the tabling of Budget 2024, and the fiscal impact from these measures was expected to be marginal. – April 1, 2024