The slight reduction is due to weaker than anticipated investment and export growth in 3Q19
by DASHVEENJIT KAUR/ pic by MUHD AMIN NAHARUL
THE World Bank Group has revised downwards its 2020 GDP growth forecast for Malaysia to 4.5% from 4.6% projected in October. Lead economist Dr Richard Record said the slight reduction is due to weaker than anticipated investment and export growth in the third quarter of 2019 (3Q19).
“The country’s economic activity is projected to grow at a relatively moderate pace in 2020 amid increased headwinds.
“However, private consumption will continue to be the primary anchor for growth,” Record said in a press conference after the launch of World Bank’s 21st edition of the “Malaysian Economic Monitor — Making Ends Meet”.
The group projects private consumption to expand at a robust rate of 6.5% next year underpinned by stable labour market conditions, relatively benign inflation and continued support from government measures.
“Over time, we will see the return contribution of the public investment as well, but private consumption will still be the anchor for next year’s growth,” he added.
Record said the group also expects to see a return of positive contribution from trade and investment despite a relatively subdued global growth and economic performance.
He further stated that various downwards risks in the global economy could have spillover effects on Malaysia’s economy.
“Further escalation of the current trade tensions could further contribute to growing uncertainty and dampen investment activity,” he said when asked if trade activities will face moderation in the coming months.
Overall investment activity is projected to grow at 1.4% next year, 0.3 percentage points lower than in the previous forecast.
The downward revision, according to Record, reflects weaker than expected private investment activity in 3Q19, as subdued trade prospects and increased uncertainty weighed markedly on business confidence and investment intentions.
As for export growth, it is projected to remain modest at 0.5% next year in the context of challenging global economic conditions and prolonged trade-related uncertainty.
Similarly, import growth is projected to pick up modestly at 0.4% in 2020, as growth of intermediate and capital exports regains some momentum with slight improvements in export and investment activity.
On performance of ringgit, the economist clarified that a lower ringgit would not necessarily be a bane to the economy.
“For an open economy like Malaysia, amid the uncertainty surrounding the global economy, having a relatively weak ringgit helps with the export competitiveness and that is perhaps not a bad thing in the current time,” he explained.
The Malaysian Economic Monitor report highlighted varying purchasing power in different parts of the country, poor financial planning, household indebtedness, and unaffordable housing as other key factors affecting living costs.
Domestic Trade and Consumer Affairs Minister Datuk Seri Saifuddin Nasution Ismail (picture) in his keynote address acknowledged that the cost of living is a concern which extends beyond prices of goods.
“Those on lower wages spend their income to pay for essentials — rent, transportation, food — and in the end, they find not much is left for the month.
“The challenge for policymakers is that solutions are needed to cater to different groups with different needs,” he said.
Saifuddin Nasution added that the National Action Council on Cost of Living that was established by the government is meant to act as a comprehensive and authoritative body on the issue of the cost of living.
The council, he said, is currently looking into reducing the prices of food items and increasing the incomes of food producers.
“That can be done by eliminating layers of middlemen in the food supply chain. For the coming year, this will be one of my main priorities in our efforts to reduce the cost of living,” he told reporters after the event.
Commenting on the issues of middlemen which led to 100% increase in prices of food items,
Saifuddin Nasution said there must be concerted efforts by all related parties to eliminate it.
“Of course first, we need to admit the current situation and the role of middlemen. Second, we need to admit something needs to be done urgently.
“Third, there must be concerted efforts. We cannot work in silo. It also must be the focus of the government in order to seriously curb the cost of living issue,” he added.
He also emphasised the focus would mainly be on food supply and the role of wholesale market.
In the report, the World Bank suggested that alleviating cost of living pressure demands a mix of short-term measures and long-term policies.
“Short-term measures should strengthen social safety nets, while over the long run, greater coordination across agencies and implementation of structural reforms to foster greater market competition and accelerate productivity would help lift real incomes for all,” it added.