KUALA LUMPUR — Dec. 9, 2019: Malaysia’s inflation is expected to rise next year, with consumer price inflation to rise in the range of 1.5-2.0 per cent compared with 0.7 per cent projected for this year.
In its 21st edition of the Malaysia Economic Monitor – ‘Making Ends Meet’ report launched here, the World Bank said the higher projection was mainly reflecting the lapse in the effects of consumption tax policy changes last year.
Additionally, the reintroduction of the float pricing mechanism for RON95 petrol and diesel the coming January is expected to result in modest increases in transportation costs.
According to the report, various downside risks in the global economy could have spillover effects on Malaysia’s economy. A further escalation of trade tensions between the United States and China could further contribute to growing uncertainty and dampen investment activity.
In addition the deepening of the slowdown in major economies as well as sharper-than-expected deceleration in China could lead to deterioration in export and growth prospects. An unexpected drop in commodity prices could also affect growth and lead to further fiscal pressures on Malaysia.
On the domestic front, the agency said risks to growth will primarily emanate from factors related to prolonged uncertainty among investors and delayed recovery in commodity-related sectors.
“Investment growth has been subdued over the recent quarters, weighed down by lower capital spending. Indicators of business sentiment suggest the level of confidence in the economy remains low.
The report further noted that elevated government debt and liabilities, the continuing decline in government revenue, coupled with increased locked-in expenditures, would constrain fiscal policy space.
The World Bank said increased locked-in expenditures such as the wage bill and debt servicing costs have put a limit on development and social spending, capping the effectiveness of the fiscal policy as a redistributive tool for shared prosperity.
Growth for 2020 revised downwards
The agency has also revised Malaysia’s gross domestic product growth forecast downwards to 4.5 per cent for next year compared with its earlier projection of 4.6 per cent.
Its macroeconomics, trade and investment lead economist Richard Record said the slightly lower forecast was largely due to weaker-than-anticipated investment and export growth in the last third quarter.
But private consumption is projected to expand at a still robust 6.5 per cent next year, underpinned by stable labour market conditions, relatively benign inflation and continued support from government measures/
In the public sector, the planned rationalisation of the government’s operating expenditure will continue to weigh on the contribution from government consumption, which is projected to grow at 1.8 per cent in 2020 compared to 1.7 per cent forecast for this year. — Bernama