KUALA LUMPUR, April 1 — The World Bank has maintained its 2024 economic growth outlook for Malaysia at 4.3 per cent in its April 2024 East Asia and Pacific Economic Update on expectation of a likely recovery in global growth and the easing of restrictive financial conditions.
East Asia and Pacific chief economist Aaditya Mattoo said domestic demand will continue to anchor growth, and Malaysia is also set to benefit from the recovery in the export market.
Private consumption is expected to grow by 5.2 per cent from 2023’s 4.7 per cent, driven by supportive labour market conditions and continuous household income support measures.
In addition, gross exports are projected to rebound by 4.8 per cent from a contraction of 7.9 per cent last year in tandem with the expected recovery in global trade.
“Given Malaysia’s exposure to China, the slowing growth in China is going to be a problem.
“But in general, Malaysia is going to benefit from what is referred to as the technology cycle, which boosts electrical and electronics (E&E) exports; and it is already benefiting from the significant relocation of semiconductor production from China,” he said during a virtual press conference today.
According to Mattoo, China’s growth is projected to moderate to 4.5 per cent this year from 5.2 per cent in 2023 amid near-term problems such as high debt and a weak property sector, on top of its longer-term challenges such as ageing and trade frictions.
Slowing China’s growth is set to drag economic expansion in developing East Asia and Pacific (EAP), which is forecast to decline to 4.5 per cent in 2024 from 5.1 per cent last year.
Excluding China, growth in the region is estimated to pick up to 4.6 per cent this year, up from 4.4 per cent in 2023.
In the longer term, he expressed optimism that China’s growth will be sustained and higher once it negotiates these difficult transitions.
As for Malaysia, he said the nation has tremendous potential to improve its economy and should not be satisfied with the current growth rate.
“Malaysia is a country which has under-achieved and has tremendous potential,” he said, stressing that the country needs to address rising household debts which squeeze consumption.
Mattoo said household and corporate debts stood at more than 70 per cent and 80 per cent of the gross domestic product (GDP), respectively.
“Malaysia is a relatively open economy and therefore high global interest rates do affect Malaysia,” he said.
According to the April 2024 update, private and public debts have increased significantly as a share of GDP in most of the EAP economies.
A 10-percentage point increase in private debt to GDP is associated with a 1.1-percentage point decline in investment growth.
China, Malaysia and Thailand also recorded much higher household debt compared to the levels in other emerging markets.
Furthermore, the economic update highlighted that heightened policy uncertainty has hurt investment in EAP countries.
Policy uncertainty was high in Malaysia and Thailand but has declined recently, the World Bank said in the update.
Malaysia is also facing continuous challenges in narrowing fiscal space for the government, it said.
The government recently announced its plan to discontinue the pension scheme for new civil servants and its intention to review price controls and subsidies in 2024.
It has indicated that targeted subsidies to the public will be given through direct cash transfers.
On the revenue front, the World Bank said the government has introduced several measures during the tabling of Budget 2024, and the fiscal impact from these measures is expected to be marginal. — Bernama
