Malaysia’s GDP to ease to 5.2% in 2018, says ICAEW

Domestic demand is expected to remain the engine of M’sia’s growth this year, says the report


Malaysia’s economic growth is forecast to ease slightly to 5.2% in 2018 from 5.9% a year ago on slightly tighter credit conditions and moderation in export growth, the Institute of Chartered Accountants in England and Wales (ICAEW) said.

In its latest “Economic Insight: South-East Asia” report, ICAEW said domestic demand is expected to remain the engine of Malaysia’s growth this year.

Improving labour market conditions, rising manufacturing wages and measures announced in Budget 2018 should continue to support household spending this year.

“However, household spending is likely to moderate this year as debt servicing costs increase in line with the rise in domestic borrowing rates, and fading fiscal support post-election,” it cautioned.

ICAEW economic advisor and Oxford Economics lead Asia economist Sian Fenner (picture) said the 2018 outlook will be determined more by the health of Malaysia’s import partners and global trade dynamics.

“In addition, further interest rates following the January hike may be brought forward if a tightening labour market triggers unexpectedly strong wage growth in 2018,” she said.

Investment spending appears healthy for 2018, with surveys showing an improvement in business conditions.

Demand for raw materials and a surge in construction applications also suggest that the pick-up in private and government infrastructure investments in 2017 is set to continue this year.

“But with US and domestic interest rates edging up, investment growth is likely to lose some momentum,” the report stated.

Malaysia’s private investment jumped 12.3% for the first three quarters of 2017, almost triple that of the average annual growth recorded from 2012 to 2016.

The outlook on exports is also optimistic, as the signing of the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership (CPTPP) means local firms will be provided with preferent ial access to 10 markets accounting for 13% of global gross domestic product.

“However, this positive development is dampened by the European Union’s plan to ban the use of palm oil in motor fuels from 2021. As Malaysia is the largest palm oil exporter in the world, this ban would disproportionately fall on lowincome rural households,” ICAEW said.

It added that exports growth will likely subside in 2018 from the “very strong pace” seen over the last year, as demand for Chinese imports — which accounted for about a fifth of the overall rise in exports in 2017 — eases.

For Asean, growth is anticipated to reach 5%, underpinned by private sector investment and domestic demand.

“We maintain our forecast of a moderate growth for the region as the momentum from 2017 will extend into this year and growth will be underpinned by the same drivers that have made last year such a success,” ICAEW regional director for South-East Asia Mark Billington said.

The forecast is based on encouraging fundamentals such as expectations for world trade growth to rise 5.2% in 2018 against a decline of 6.2% in 2017.

Business sentiment is high, with firms upbeat about the opportunities provided by China’s One Belt, One Road initiative and the resurrected CPTPP.

Further, owing to a relatively muted outlook for inflation and foreign-exchange, interest rates are unlikely to rise significantly over the next 12 months.