KUALA LUMPUR, May 8 — High state and household debt in Malaysia will continue to impede growth while stagnant wages will continue to drag down private spending throughout the year, senior economist for Asia at Euler Hermes-Allianz Research Mahamoud Islam said today.

At a media briefing on Malaysia’s 2017 economic outlook here, Mahamoud said measures to rein in the country’s piling debt will limit its financial capacity to support growth.

"Challenges to growth remain, as Malaysia’s financial capacity to support growth is limited,” he said in a statement to reporters.

"Fiscal manoeuvring in Malaysia is constrained by a hefty public debt compared to regional peers [above 50 per cent of GDP],” he added.

Adding to that, Bank Negara Malaysia is prevented from lowering interest rates further as Malaysia’s household debt continues to climb. 

Private debt now totalled 88.4 per cent of GDP, the highest in Asia.  

However, the economic pace is expected to pick up in the second half of 2017 with a mild recovery set to push growth to around 4.5 per cent thanks to improved demands from Malaysia’s two biggest trading partners, China and the US.

The Euler Hermes-Allianz data suggests the communist republic is climbing out of deflation; urban investments and industrial production numbers showing signs of revival.

Market sentiment in the US on the other hand is also displaying strong signs of improvement as President Donald Trump’s stimulus package and tax incentive announcements are expected to drive domestic demand.

"China is importing again which means it’s a good thing,” Mahamoud said.

"In the US there is fiscal support from the stimulus… domestic demand is expected to rise and so far we have not seen any downside risks from [Trump’s] protectionism,” he added.

Allianz Research forecasted global trade value to increase by +3.6 per cent this year.