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Malaysia’s GDP to grow 4.9% in 2019 backed by consumer demand

Private consumption has risen steadily over the past years, increasing its share of GDP to 56% in 2018 from 49% in 2011

Malaysia’s GDP is expected to grow 4.9% this year despite the slower global growth projected, said Standard Chartered Global Research (StanChart).

Its chief economist for Asean and South Asia (ASA) Edward Lee (picture) said the tax rebate amounting to some 2.5% of the country’s GDP and the potential recovery from the mining supply disruption provide a small boost to the economy.

“The overall trend is going to be slower due to Malaysia being a small and open economy. We have to look at external demand, which has clearly been on the slowing side. However, consumer demand is likely to remain the main growth pillar, driving the expected pick-up in 2019.

“Nevertheless, private consumption has risen steadily over the past years, increasing its share of GDP to 56% in 2018 from 49% in 2011,” he said to the media after presenting StanChart’s 2019 Economic Outlook in Kuala Lumpur yesterday.

Lee said the resumption of production capacity in the mining sector, which was disrupted by unplanned outages and pipeline repairs (according to the central bank) may also contribute to the growth in 2019.

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“The matter was not a demand, but a supply issue. If it is resolved this year, I would expect that to add to growth,” he said.

Without such one-off factors, he expects the GDP growth level to be slow, around 4.4%-4.5%, from 4.7% last year.

On the issue of the ongoing US-China trade dispute, Lee said while the focus has been on the negatives, there is also a bright side to it.

“In the short term, any slowdown in global growth or global trade will negatively affect Malaysia, given that it is a small, open economy.

“However, in the longer term, given that Malaysia is a keen competitor of the same products that China sells to the US, if the supply chain moves from China and comes to Malaysia, that would be positive for Malaysia,” he said.

When asked if there is a time frame for the positive effect to come into place, Lee said he expects the situation will not happen within the next one or two years’ time, but more likely over a two- to five-year period.

“If you are committing real capital to a country that you do not have any investments in before, there is a lot of background checks and decisions that need to be made before committing real capital.

“This is foreign direct investment, not portfolio flows which you can just decide. After committing real capital, you need to set up factories, production lines and the local supply chain to meet production requirements,” he said.

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Building Asia’s Innovation Capability

Conference – April 24, 2019 | Workshops – April 25, 2019

Kuala Lumpur, Malaysia

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Lee noted that Malaysia is the third-most attractive economy behind Vietnam and Mexico in terms of taking advantage of the trade disagreement due to its labour cost and quality infrastructure, customs policies, ease of doing business and overall excellent environment.

On the matter of monetary policy, Lee expects Bank Negara Malaysia (BNM) to keep rates steady in 2019.

He expects BNM will remain focused on growth with low inflationary pressure.

StanChart head of ASA foreign exchange research Divya Devesh said he forecast the US dollar-ringgit exchange rate to range around 4.25 in mid-2019 and 4.30 at end-2019.

“The ringgit remains undervalued, but we see little catalyst for a recovery. Portfolio inflows remain weak amid fiscal concerns and further declines in Malaysia’s bond index weights. Low price for crude palm oil, a key export, have also not helped,” he said.

Source: https://themalaysianreserve.com/2019/01/23/malaysias-gdp-to-grow-4-9-in-2019-backed-by-consumer-demand/

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