MALAYSIA could see modest economic growth in 2020, with gross domestic product (GDP) expansion reaching 4.8%, said economists.

This is in line with the government’s forecast of 4.8% for 2020.

Senior fellow at the Malaysian Institute of Economic Research (MIER), Shankaran Nambiar, projects GDP growth of between 4.5% and 4.8%.

“The growth outlook for 2020 can, at best, be modest and, at worst, weak,” he told The Malaysian Insight.

There is little reason for growth to be better than last year as the global climate continues to pose risks, he said. The World Bank’s outlook for Malaysia’s GDP growth in 2019 is 4.6%.

“Growth could remain about where we were in 2019, though there are some risk factors that could pull growth down, though to a limited extent,” Shankaran said.

“It appears that the US-China trade war has seen the end of its first phase and could enter the second phase in 2020.  

“Although tariffs may not be the instrument of choice next year, we could see controls, substitutions and sanctions being imposed on China. This could result in weaker growth for China, which will affect global growth, as well as Malaysia’s export growth,” he said.

Malaysia could gain from relocated investments, however, if trade tensions worsen between the two economic superpowers.

Another positive for Malaysia is that demand for semiconductor chips could modestly rise by 5% to 6% due to the increase in consumer electronics products next year after a downturn in 2019, Shankaran said.

“Infrastructure projects may also give some impetus for growth. Even if there is muted external demand, there might be some push from domestic demand.”

Sunway University’s Business School Economics Prof Yeah Kim Leng is more optimistic on growth prospects.

With two key risks, namely the US-China trade war and Brexit abating, he said global growth and trade are poised for recovery in 2020, after slowing down substantially in 2019.

“The positive turn of events recently has lent support to the official forecast of 4.8% growth for 2020.

“While the roll-back of US-China tariffs is less than expected, the averted tariff escalation afforded by the Phase 1 deal will sustain growth, not only in the world’s two largest economies, but boost global trade and growth in trade-dependent countries that include Malaysia,” he said.

With large trade exposure to both economies, Malaysia will be a key beneficiary both in the cyclical lift in global demand as well as in the longer term. 

China and the US are expected to sign a Phase 1 deal after on-and-off negotiations to deescalate tensions.

Domestic growth

Shankaran, meanwhile, said growth will also be domestically driven in 2020, although there will be factors that could dampen local demand.

These include household debt, living costs, the impact of a higher minimum wage – all of which could cause business and consumer sentiments to soften domestic demand.

Uncertainty over unresolved domestic political issues might be another factor in 2020.

He also said clearer direction on the economy is still needed and the 12th Malaysia Plan, a blueprint for the following year, 2021, until 2025, has to be “bold and offer a firm sense of direction”.

“Given the current state of government finances and the external landscape, this seems unlikely,” he said, referring to the government’s ongoing cost-cutting measures to deal with monumental debt.

And although there were massive investment approvals made in 2019, Shankaran said these approvals cannot be expected to fructify immediately in 2020.

Overall, however, Yeah said Malaysia’s growth and trade prospects have brightened in 2020, supported by resilient domestic demand and higher government spending.

The improved market sentiments and external outlook for Malaysia would also raise investor and consumer confidence, he said. – January 2, 2020.