Economic report 2015/16: Domestic demand will drive economic growth in 2016

PETALING JAYA: Growth in the Malaysian economy will be driven by domestic demand next year, with private expenditure as the main anchor and moderate increase in public expenditure.
According to the Economic Report 2015/16, domestic demand remains resilient and is expected to grow 5.5% next year (2015: 5.9%), driven by private sector spending.
"The strong private sector performance, despite global uncertainties, will enable the government to continue strengthening its fiscal position while reinforcing the private sector as the engine of growth," it said.
Private sector activity is anticipated to expand, supported by broad-based growth across all sectors, benefiting from the ongoing implementation of initiatives under the Government Transformation Programme (GTP) and Economic Transformation Programme (ETP) while the rollout of programmes under the 11th Malaysia Plan (11MP) is expected to support growth.
Private investment is projected to increase by 6.7% (2015: 7.3%) with the bulk of investment in the manufacturing and services sectors.
Investment in the manufacturing industries is expected to increase, particularly in higher value-added electric and electronic, chemicals as well as M&E and high-growth industries such as medical devices and aerospace.
"In the services sector, capital spending is expected to accelerate in ICT, O&G services, private healthcare, private higher education, professional services, ecotourism and halal industry, following the government's measures to revitalise and modernise the services sector," it said.
Small and medium enterprises (SME) can look forward to continued promotion of domestic investment through ongoing initiatives under the SME Masterplan. These measures will enhance their competitiveness and encourage more investment, especially in knowledge-based industries with high value-added products and services.
Private consumption is anticipated to expand by 6.4% (2015: 6.8%) benefiting from stable employment prospects and favourable wage growth. Easy access to credit, BR1M cash transfer, accommodative interest rates and benign inflation are expected to support private consumption spending.
While the government remains committed to fiscal consolidation, fiscal policy will remain supportive of growth. For 2016, public expenditure is expected to increase by 2.7% (2015: 2.8%).
"Public investment is expected to record a higher growth of 2.3% (2015: 1.6%) supported by new projects under the ETP and 11MP as well as ongoing projects under the 10MP. Federal Government development expditure will be focused on projects and programmes with higher value-added potential and larger spillover effects on the economy, such as upgrading infrastructure, improving public utilities, providing better quality healthcare, improving manpower skills as well as increasing research and development support."
Meanwhile, capital spending by public corporations, particularly Petronas, TNB and MRT Corp is expected to remain strong. These includes projects such as Rapid, FLNG 2, new power plants and MRT Lines 1 and 2.
Public consumption is expected to increase by 3% (2015: 3.6%) on account of continued allocation for emoluments as well as supplies and services.
Overall, the economy is expected to grow between 4% and 5% next year while nominal GNI per capita is expected to rise 5.6% to RM38,438.
Meanwhile, the impact of the Goods and Services Tax on prices is expected to wane next year, while the weakening ringgit may lead to higher prices in some imported goods.
"This will be mitigated by weak commodity prices and lower global inflation. Furthermore, the economy is expected to operate in line with its potential output without any significant upward pressure on domestic prices. Hence, inflation is expected to remain stable at 2% to 3% for 2016."