ICAEW: Malaysia’s GDP growth to moderate in 2019, forecast at 4.4%

KUALA LUMPUR: Malaysia’s gross domestic product (GDP) is expected to grow at 4.4% in 2019 on the back of domestic demand, amidst a difficult export environment, according to the Institute of Chartered Accountants in England and Wales’ (ICAEW) latest Economic Insight: South-East Asia report.

It said Malaysia’s domestic demand is expected to cushion against challenges of moderate export growth amid increased trade protectionism and slower Chinese import demand. Exports are expected to remain under pressure, with the increase in trade protectionism over the past year unlikely to change any time soon.

Economies in the South-East Asian region started the year on a soft note, as a result of the weakness in global economic activity late 2018. Malaysia was the only country to record positive annual growth for exports, as regional figures tumbled in December 2018; contracting 2.3% on the year following a weak outcome (2.2%) in November. Data indicates further weakness ahead in the manufacturing and export sectors as Malaysia’s aggregate Purchasing Managers’ Index slipped into contractionary territory.

Domestic demand will likely provide some relief, however there are pockets of concern, with regards to investment growth. Private capital expenditure especially in machinery and equipment investment, has been on a downward trend in Malaysia in light of notably slower export growth.

Residential investment will also expected to be held back by demand and supply imbalances but construction, particularly infrastructure investment, is expected to limit the downside to overall investment. Benign inflation conditions and rising real income growth will also continue to support household spending.

ICAEW economic advisor & Oxford Economics lead Asia economist Sian Fenner said looking ahead, it expects the risks to the economic outlook of Malaysia to be primarily to the downside.

“A sharper slowdown in Chinese economic growth, triggered by worsening confidence or a renewed escalation in US-China trade tensions, both affect global trade and growth across the region. That said, we do not expect the external environment to be as worrisome as it was in 2015/16, as China’s growth is also expected to stabilise in Q2,” Fenner said in a statement.

Looking at economies in South-East Asia, domestic demand will likely provide some relief, together with accommodative macro policies. Most central banks are likely to keep policy rates unchanged well into the second half of 2019 amid muted inflationary pressures. Expansionary fiscal policy will also help, with fiscal spending expected to be strong in Indonesia, Thailand and the Philippines ahead of upcoming elections in the first half of 2019.

ICAEW regional director of South-East Asia Mark Billington said although it expects domestic demand to remain resilient, the impact of increased trade tensions in the past year and slower Chinese import demand is likely to act as a drag on the region’s growth as a whole.

“The outlook for Asia trade may continue to face a challenging export environment,” said Billington.