MALAYSIA is aiming for a gross domestic product (GDP) growth of 4.9% for 2019 despite the global economic challenges and cuts to public spending,

“The new government expects private sector expenditure to remain a key driver of growth, cushioning the effects of lower public spending in 2018 and 2019,” the 2019 Economic Outlook released today reports.

“Stable employment and wage growth, conducing financing conditions and stable inflation will drive private consumption, which accounts for 55% of the GDP.”

Lower public expenditure is due to decisions to delay or cancel mega projects such as the high-speed rail (HSR), East Coast Rail Link (ECRL), MRT3 and LRT3.

“The cost of LRT3 was reduced 47% from RM31.7 billion to RM16.6 billion while the other three projects have been postponed.”

On private investments, the government anticipates the capital outlays will be put into the services and manufacturing sectors.

On the supply side, growth is expected to be driven by the services and manufacturing sectors while the agriculture and mining sectors are expected to recover next year.

Services

In the first half of 2018, services grew 6.5% year-on-year, led by wholesale and retail trade, finance, information and communications, and food and beverage.

Accounting for 55% of the GDP, the services sector is projected to grow 6.3% and 5.9% in 2018 and 2019, respectively.

The wholesale and retail subsection is expected to stay resilient at 7% and 6.3% in 2018 and 2019, respectively, thanks to the three-month break between tax regime switches and minimum wage revision.

The growth is supported by higher e-commerce trade from 3,800 SMEs joining the Digital Free Trade Zone (DFTZ) platform, as of September.

Other sub sectors are expected to remain resilient in 2019; finance & insurance (5.5%), information & communication (8%), business services (6.6%) and food & beverage (6.9%).

Manufacturing

The manufacturing sector increased 5.1% (year-on-year) during the first half of 2018 and is expected to grow 4.9% driven by exports.

“Continuous expansion in the electronics cycle and favourable global industrial activities are expected to translate into firm demand for Malaysian manufactured exports. These include E&E, petroleum, chemical, rubber and plastic products,” said the report.

In 2019, the manufacturing sector is forecast to expand 4.7% supported by export-oriented industries.

Agriculture

The sector grew a marginal 0.1% (year-on-year) during the first half of 2018 due to lower growth in the oil palm subsection coupled with a contraction in the rubber sub sector.

These two activities accounted for 50.3% of the agriculture sector.

“In 2018, the sector is expected to decline 0.2% due to lower production and prices for crude palm oil (CPO) and rubber. The sector, however, projected for a rebound in 2019 (3.1%) due to improvements in all sub sectors except forestry and logging.”

This year’s decline in CPO production was mainly caused by prolonged dry season in Sabah and Sarawak.

“In addition, CPO is expected to be affected by lower demand from China following substitution to other vegetable oils.

“Exports to India are also expected to be lower due to higher import tariffs on CPO and refined palm oils.”

Domestic Demand

Growth is expected to remain resilient at 5% and 4.8% in 2018 and 2019, respectively.

The government expects growth to be sustained by private sector expenditure at 6.5% in 2018 and 6.4% in 2019, constituting about 72% of the GDP.

In 2019, private investment is expected to be higher at 5% due to capital expenditure on technology-intensive manufacturing and services sectors.

Public expenditure, however, is anticipated to further decline to 0.9% in 2019 after recording a marginal growth of 0.1% in 2018 due to lower investment by public corporations.

Public consumption will expand 1% in 2018, in line with government efforts to rationalise its expenditure.Despite global challenges, cost-cutting, Malaysia aims for GDP growth of 4.9%. – November 2, 2018.