World Bank retains 4.3% growth forecast for ‘underachieving’ Malaysia
Published on: Monday, April 01, 2024
By: Bernama
The World Bank says Malaysia needs to address rising household debts which squeeze consumption.
Kuala Lumpur: The World Bank has kept its 2024 economic growth outlook for Malaysia at 4.3% in its April 2024 East Asia and Pacific economic update, in view of a likely recovery in global growth and the easing of restrictive financial conditions.
East Asia and Pacific chief economist Aaditya Mattoo said domestic demand would continue to anchor growth, and that Malaysia was also set to benefit from recovery in the export market.
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Private consumption is expected to grow by 5.2% from 2023’s 4.7%, driven by supportive labour market conditions and continuous household income support measures.
In addition, gross exports are projected to rebound by 4.8% from a contraction of 7.9% last year in tandem with the expected recovery in global trade.
“Given Malaysia’s exposure to China, the slowing growth in China is going to be a problem.
“But in general, Malaysia is going to benefit from what is referred to as the technology cycle, which boosts electrical and electronics exports. And it is already benefiting from the significant relocation of semiconductor production from China,” he said during a virtual press conference today.
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According to Mattoo, China’s growth is projected to moderate to 4.5% this year from 5.2% in 2023 amid near-term problems such as high debt and a weak property sector, on top of its longer-term challenges such as ageing and trade frictions.
China’s slowing growth is set to drag economic expansion in developing East Asia and Pacific, declining to 4.5% in 2024 from 5.1% last year. Excluding China, growth in the region is estimated to pick up to 4.6% this year, from 4.4% in 2023.
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Mattoo expressed optimism that China’s growth would be sustained in the longer term and increase once it negotiates these difficult transitions.
As for Malaysia, he said the nation had tremendous potential to improve its economy and should not be satisfied with the current growth rate.
“Malaysia is a country which has underachieved and has tremendous potential,” he said, adding that the country needs to address rising household debts which squeeze consumption.
Mattoo said household and corporate debts stood at more than 70% and 80% of the gross domestic product, respectively.
“Malaysia is a relatively open economy and therefore high global interest rates do affect Malaysia.”
According to the April 2024 update, heightened policy uncertainty has hurt investment in East Asia and Pacific countries. Policy uncertainty was also high in Malaysia and Thailand but recently declined, the World Bank said.
Malaysia is also facing continuous challenges in narrowing fiscal space for the government, it said.
The government recently announced its plan to discontinue the pension scheme for new civil servants and its intention to review price controls and subsidies in 2024.
It has indicated that targeted subsidies to the public will be given through direct cash transfers.
In terms of Putrajaya’s revenue, the World Bank said the fiscal impact from the government’s introduction of several measures under the 2024 budget is expected to be marginal.
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