By NG MIN SHEN / Graphic By TMR
Malaysia’s economic growth is expected to plunge to 4.8% in 2018 from 5.9% in 2017 as private consumption is set to slow, while the government budget deficit is forecast to climb to 3% in 2019 and 2020, according to Standard Chartered Bank (M) Bhd (StanChart).
In its latest global research report titled “Beneath the Surface”, StanChart has maintained its view that the growth drivers have shifted further towards private consumption from investment.
“We expect private consumption to remain robust, thanks to a healthy labour market, with low inflation supporting real wages. However, consumer spending is likely to slow in the fourth quarter of 2018 (4Q18) following the implementation of the Sales and Services Tax, as consumers likely to have front-loaded purchases during the tax-free period.
“Consumption also faces other headwinds, including a falling ratio of job vacancies to active job seekers (1.02 times as of 2Q18 down from 1.64 times in 3Q17), still-high household leverage and moderating property prices,” the research outfit noted.
In contrast, the investment outlook is dim and external demand is moderating. Growth in the construction sector lagged to 4.7% year-on-year (YoY) in 2Q18, the slowest in 27 quarters, due to sluggish residential property construction.
Residential construction work completed fell 7.6% YoY in 2Q18, the worst performance in 32 quarters and the second consecutive quarter of negative growth.
The government has also placed infrastructure mega projects under review, resulting in the cancellation of the East Coast Rail Link and the postponement of the Kuala Lumpur-Singapore high-speed rail.
Externally, moderating growth in China and rising trade tensions may weigh on exports, which also face an unfavourable base effect in the second half of 2018 (2H18).
StanChart also expects Malaysia’s growth to fall below potential in 2019, thus increasing the likelihood of monetary policy loosening.
Private consumption, the only significant growth driver, is expected to moderate in 2H19, while inflation is likely to exert less influence on monetary policy in the near term due to expected volatility in inflation prints through late 2019.
Meanwhile, the loss of government revenue from the Goods and Services Tax is likely to make keeping fiscal consolidation on track more difficult.