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Bank Negara: Economy to grow by 4.3% to 4.8% in 2019

According to Bank Negara's Annual Report 2018 released on Wednesday the well-diversified export structure, in terms of products and markets, will help soften the impact of moderating global growth on external demand.

KUALA LUMPUR: The Malaysian economy is expected to sustain its growth momentum and expand by between 4.3% and 4.8% in 2019 compared with 4.7% last year anchored by private sector activity, supported by stable income and employment growth, as well as sustained capacity expansion by businesses. 

According to Bank Negara's Annual Report 2018 released on Wednesday the well-diversified export structure, in terms of products and markets, will help soften the impact of moderating global growth on external demand.

“New production facilities and the recovery from the supply disruptions in the commodity sector will provide additional impetus to domestic economic activity. 

“The well-developed financial system with strong financial institutions will ensure that domestic financing conditions remain supportive of the changing needs of the economy,” it said.

Bank Negara said output from new manufacturing production facilities that will begin operating in 2019 will lend further support to growth. 

“These facilities include large oil refinery and petrochemical facilities, as well as electrical and electronics (E&E), chemicals and rubber plants,” it said. 

On the services sector, it is expected to grow at a slightly faster of 6.8% compared with 5.7% in 2018. However, the manufacturing sector is expected to grow at slower pace of 4.8% from 5%. 

The mining and agriculture sectors are expected to record positive growth rates amid recovery in natural gas production and higher palm oil output.

As for the mining sector, it is expected to expand by 0.8% vs a contraction of -1.5% in 2018 while the agriculture sector is expected to rebound and grow by 2.8% compared with a  contraction of -0.4%.

Since the large petrochemical projects in civil engineering sub-sector have been completed, the construction sector is expected to grow at a slower pace of 3% from 4.2% in 2018.

In addition, the oversupply situation in the property market could dampen activity in the construction sector.

On the demand side, private sector spending will continue to drive growth. 

“Following the lapse of one-off factors in 2018, private consumption growth is expected to moderate, but remain firm. Household spending will benefit from continued employment and income growth,” Bank Negara said.

It said employers surveys indicate salary increments are expected to be sustained between 4.9% – 5.2%  in 2019 and the unemployment rate relatively unchanged (3.3% – 3.5%; 2018: 3.4%).

Domestic demand will remain the anchor of growth in 2019, underpinned by continued expansion in private sector activity. 

“Public sector expenditure, however, is expected to weigh on growth amid the completion of large-scale projects by public corporations and continued re-prioritization of government spending.

“The external sector is projected to register a more moderate growth in line with modest global growth and trade activity,” it said.

Bank Negara said private consumption was projected to expand by 6.6% in 2019. After recording a strong growth in 2018,  household spending was expected to normalize closer to its long term average of 6.7%.

Private investment is projected to grow by 4.9% in 2019. The ongoing multi-year projects would continue to support investment activity, particularly in the manufacturing and services sectors. This includes capital spending in the E&E and primary-related manufacturing sub-sectors as well as the transport, storage and communication services sub-sectors. 

Public consumption is expected to expand at a moderate pace of 1.2% due to a decline in spending on supplies and services amid stable emoluments growth. 

“This is in line with the Government’s continued commitment to rationalize non-critical spending without affecting public service delivery and to increase efficiency through cost reduction in the public sector.

“Public investment is projected to contract by 7.1% due mainly to lower investment by public corporations following the completion of large-scale projects. 

“Capital spending by the general government is expected to be mainly channeled towards upgrading and improving public infrastructure and amenities,” it said.

While Malaysia's exports will soften in 2019 in line with the more moderate expansion in the global economy and trade activity, its well-diversified export structure, in terms of both products and markets will contribute to sustain the expansion in gross exports.

Elaborating on the exports, Bank Negara said it expected slower growth of 3.4% in 2019 versus 6.8% in 2018.

“The impact of the trade tensions and moderating demand from major economies will be significant. There are, however, mitigating factors. These include sustained demand from selected emerging economies, especially among ASEAN countries,” it said. 

Manufactured exports are projected to expand at a slower pace of 4.8% in 2019 (2018: 9.1%) supported by continued, albeit moderating demand from key trade partners. 

There are, however, factors which will weigh on exports performance in 2019. Lower mineral prices and crude oil production are expected to more than offset the increase in LNG and CPO output, resulting in continued contraction in commodity exports. 

The ongoing trade tensions between the US and China will also affect export growth both directly through lower demand from affected countries and indirectly through slower production in the global value chains. 

According to Bank Negara, gross imports are projected to expand by 4.5% in 2019 (2018: 4.9%) due to a turnaround in intermediate and capital imports. Higher imports of crude petroleum as input for the large oil refinery facility and continued growth in manufactured exports will support the increase in intermediate imports. 

Capital import growth is expected to rebound due to a low base effect in 2018 and continued investment activity in the manufacturing and services sectors. Consumption imports will be driven primarily by demand for imported food and beverages.

The services deficit is expected to be sustained, reflecting continued deficit in several major components of the services account. 

In particular, the transportation deficit is expected to remain sizable as firms continue to rely heavily on foreign freight providers for trade activity. 

The income account is projected to record a wider deficit, attributable to the increase in the number of locally-incorporated foreign firms which continue to earn sizable profits. This reflects Malaysia’s continued position as an attractive profit center for foreign direct investments. 

Overall, the current account is projected to continue registering a surplus in 2019, albeit narrowing to between 1.5% and 2.5% of GNI. 

“Of significance, the current account is expected to remain in surplus in the absence of significant and persistent shocks, including a sharp slowdown in the global economy and a decline in commodity prices. 

“This is due in large part to Malaysia’s diversified export base which helps to mitigate the impact of shocks to the external sector,” it said.


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