A THINK-TANK today maintained Malaysia’s gross domestic product (GDP) growth at 4.5%-4.7% for 2019, below the 5% as projected by Prime Minister Dr Mahathir Mohamad.

Lee Heng Guie, executive director of the Socio-Economic Research Centre (SERC), said its projections are based on the contraction in exports and slowdown in private investment figures as well as continued uncertainty in global trade tensions.

He was responding to Dr Mahathir’s prediction that Malaysia can achieve GDP growth of above 5% this year despite the government’s own projection of 4.8% to 4.9%.

“The first quarter is only 4.5%, so it will be challenging to achieve 5%,” Lee said at a press briefing today.

“The continued expansion in domestic demand and moderate exports growth would continue to support the overall economy.

“But downside risks remains, especially from the escalation of trade tensions that could further dent global growth and trade,” he said.

The economic performance hinges on the G20 trade talks between US President Donald Trump and President Xi Jinping in Osaka, Japan, from June 28-29, Lee said.

SERC’s quarterly economic tracker (April-June) noted that cautious business and consumer sentiments would continue to weigh on private spending.

It said that sustained consumer spending was key to maintaining the growth forecast.

“The factors supporting continued household consumption are a stable labour market condition, continued wage growth and cost-of-living aid (bantuan sara hidup),” he said.

The second cost of living payment totalling RM1.42 billion was distributed on May 28 to 3.6 million households.

Lee said the public sector also provided some support (6.3%) with the revival of big infrastructure projects, such as the East Coast Rail Link and Bandar Malaysia.

Export growth also rebounded in April (1.1%) after two successive months of contraction.

Private consumption growth remained strong at 7.6% with retail sales growth moderating significantly to 6.3%.

On the inflation side, Lee said, it is expected to revert to a positive trajectory indicating continued domestic demand.

“SERC expects headline inflation to average 1%-1.5% in 2019 due to some pass through from domestic cost factors such as lapse in consumption tax policy, increase in prices of soft drinks due to soda tax, and potential higher increase in food prices,” said Lee.

Bank Negara Malaysia is not expected to raise the interest rate for the rest of the year after a 25bps hike to 3.0 in May.

“BNN will to monitor the impact of rate cuts by other central banks before deciding,” said Lee.

Although the US Federal Reserve has said that it did not plan for more hikes this year, it has opened the door for rate cuts, he added.

For the ringgit, SERC is expecting it to trade between 4 and 4.15 for the year against the greenback. – June 24, 2019.