MALAYSIA’S economic situation in 2020 will be slightly more challenging than last year as growth is expected to slow to 4.5%, compared with 4.6% last year, said a think-tank.

Conditions for the local economy will be helped if there tensions involving the US-China trade war and US-Iran conflict in the Middle East are eased, the Socio-Economic Research Centre (SERC) said today.

Some of the biggest challenges to growth this year are the health of global economy and continued slowdown in private domestic investment, the centre said.

Due to the sluggish pace of domestic private investment in Malaysia, a big part of the economy is being powered by private consumption, said SERC executive director Lee Heng Guie.

“It is important for the government to sustain private consumption as it is the only leg holding up the economy due to weak private investment,” Lee told a briefing on the 2020 economic outlook.

“Domestic demand, especially private consumption, will be calling the shots, albeit at a slower pace.

“The 2020 Budget’s 4.3% increase in development expenditure to RM56 billion should help provide partial support to the domestic economy.

“What matters most is to execute effectively the budget’s programmes and initiatives, and to disburse funds in a timely manner for the implementation of projects.”

Private consumption is estimated to grow at a slower pace of 6.7% this year compared with 7.2% in 2019, and is supported by a stable labour market, continued wage growth of between 4.5% to 5%, and RM5 billion in cost of living aid for needy households.

In comparison, private investment will remain cautiously weak and grow by only 2.2%, as opposed to 9% in 2017 and 4.3% in 2018.

The unemployment rate is projected to rise slightly to between 3.3%-3.4%, said the SERC.

Headline inflation is expected to increase to 2% this year from 0.7% in 2019 due to higher costs from a higher minimum wage, digital tax, potential increase in water tariffs and crude oil prices.

The main sources of growth in 2020 are expected to come from the services sector, which makes up 58.2% of gross domestic product, as opposed to manufacturing (22.%) and agriculture (7.2%).

The services sector is estimated to grow by 6.1% from 6% in 2019, due to Visit Malaysia Year 2020, the roll-out of 5G networks and bank lending.

A rise in output in electronics and electrical products will likely help the manufacturing sector grow by 4.4% this year from 3.9% in 2019.

A 4.6% growth rate in the agriculture sector will be driven by a higher output of palm oil, rubber and food products.

“This year will be equally as challenging as 2019 but hopefully, the external environment will be better,” Lee said. – January 14, 2020.