By FARA AISYAH / Pic By TMR
Malaysia’s economy is expected to expand by 4.4% this year, backed by domestic demand amid a gloomy export environment, said the Institute of Chartered Accountants in England and Wales (ICAEW).
In its latest report on economic insight for South-East Asia, ICAEW stated that exports from Malaysia are expected to remain under pressure with the increase in trade protectionism over the past year, which is unlikely to change any time soon.
It noted that Malaysia was the only country in the region to record positive annual growth in exports, as regional figures tumbled in December 2018 — declining 2.3% for the year following a weak outcome of 2.2% in November.
The data suggested further weakness in the manufacturing and export segments as Malaysia’s aggregate Purchasing Managers’ Index slipped into contractionary territory.
“Looking ahead, we expect the risks to the economic outlook of Malaysia to be primarily drawn to the downside. A sharper slowdown in Chinese economic growth, triggered by worsening confidence or a renewed escalation in US-China trade tensions, will affect global trade and growth across the region,” ICAEW economic advisor and Oxford Economics lead Asia economist Sian Fenner said in a statement yesterday.
“That said, we do not expect the external environment to be as worrisome as it was in 2015/2016, as China’s growth is also expected to stabilise in the second quarter,” she added.
Fenner said domestic demand will likely provide some relief — however, there are pockets of concern with regard to investment growth.
The country’s private capital expenditure, especially in machinery and equipment investment, has been on a downtrend in light of notably slower export growth.
In addition, residential investment is expected to be held back by demand and supply imbalances, but construction — particularly infrastructure investment — is expected to limit the downside to over-
ICAEW also said benign inflation conditions and rising real income growth will also continue to support household spending.
As for the economies in South-East Asia, ICAEW said domestic demand will likely provide some relief, together with accommodative macro policies.
It added that most central banks are likely to keep policy rates unchanged well into the second half of 2019 (2H19) amid muted inflationary pressures.
Meanwhile, expansionary fiscal policy will also help, with fiscal spending expected to be strong in Indonesia, Thailand and the Philippines ahead of upcoming elections in 1H19.
“Although we expect domestic demand to remain resilient, the impact of increased trade tensions in the past year and slower Chinese import demand is likely to act as a drag on the region’s growth as a whole,” ICAEW regional director of South-East Asia Mark Billington said.
“The outlook for Asian trade may continue to face a challenging export environment,” he added.