THE Malaysian economy is estimated to expand by 4.8% next year on the back of resilient domestic demand despite external challenges, according to the Finance Ministry.

Gross domestic product (GDP) is expected to expand to 4.8% in 2020 from 4.7% this year, said the ministry’s Economic Outlook 2020 report that was released ahead of Budget 2020.

The report said household spending, which accounts for 58% of GDP, will continue to be the engine of growth supported by a stable labour market and low inflation.

Private investment is expected to slow down in 2019 before picking up in 2020 with the resumption of infrastructure projects and ongoing capital spending in services and manufacturing.

“Favourable private sector expenditure activity will offset the impact of lower public expenditure in 2019. However, economic growth is expected to rebound in 2020 with improvement in public corporation’s capital outlay,” it said. 

On the supply side, the services and manufacturing sectors will continue to be the main contributors to economic growth.

The services sector will be driven by wholesale and retail trade, information and communications, as well as the finance and insurance sub-sectors, which in turn will be firmly backed by robust household spending.

The manufacturing sector is likely to see a slower pace this year due to the downcycle in the electrical and electronics sub-sector.

However, it is expected to pick up next year with a better outlook for the semiconductor industry.

The agricultural sector is expected to see some growth thanks to higher production of crude palm oil (CPO) and natural rubber, while the mining sector is projected to see a higher production of natural gas.

While exports growth is expected to moderate in 2019 due to the slowdown in global trade, it is expected to gradually increase next year due to an anticipated recovery in the world economy. 

The current account surplus is expected to widen in 2019 due to the increase in net exports of goods and services and narrow in 2020 due to higher imports and widened deficit in services and income accounts.

Although the US-China trade war, sluggish global growth and the volatility of world financial markets will weigh down the local banking industry and capital markets, the two sectors are expected to be robust and resilient.

The ministry also highlighted several challenges to the Malaysian economy which include the uncertainty over Brexit and the US-China trade war.

Domestically, lack of access to affordable housing, worsening environmental conditions and insufficient employment opportunities among graduates are some areas of concerns.

Slow progress of bumiputera participation in various programmes and the need for quality healthcare services are also other issues that warrant attention.

The volatility of palm oil and rubber smallholders earnings, lack of dynamism in the tourism industry and slow adoption of technology could also drag economic progress down.

“Besides poor connectivity, the gradual transition of E&E industries to high value added activities and inability to secure financing are other issues of concern.

“Realising this, the government will intensify its efforts to address the concerns of the people as well as reinvigorate the economy,” it said. – October 11, 2019.