Malaysia sees favourable growth outlook as policy risks mount

BNM governor Datuk Muhammad Ibrahim speaks during a press conference in Kuala Lumpur May 17, 2018. ― Picture by Ham Abu Bakar
BNM governor Datuk Muhammad Ibrahim speaks during a press conference in Kuala Lumpur May 17, 2018. ― Picture by Ham Abu Bakar

KUALA LUMPUR, May 17 ― Malaysia’s central bank said economic growth remains favourable even though policy risks after last week’s unexpected election win by Tun Dr Mahathir Mohamad clouds the outlook.

Growth of 5.4 per cent in the first quarter was lower than the 5.6 per cent median estimate in a Bloomberg survey of economists, and down from 5.9 per cent in the previous three months.

“While the growth of 5.4 per cent recorded in the first quarter of 2018 is slightly lower than the official range of 5.5 per cent to 6 per cent, Malaysia’s GDP growth is expected to remain favorable going forward,” Governor Tan Sri Muhammad Ibrahim told reporters today in Kuala Lumpur.

Expansion for the rest of the year will depend on a number of policies that Dr Mahathir must still lay out. Key among those are how the government will offset a slump in tax revenue after eliminating the 6 per cent goods-and-services tax, plans to reintroduce fuel subsidies, and details on which infrastructure projects will be reviewed.

Key Highlights of GDP Report GDP rose 5.4 per cent in 1Q from year ago; median est. was 5.6 per cent GDP rose 1.4 per cent in 1Q from previous 3 months Private consumption rose 6.9 per cent, supported by rising wages Exports climbed 5.8 per cent in 1Q from year ago Current-account surplus widens to 4.5 per cent of GDP.

Malaysia was riding an economic boom before the election, underpinned by strong domestic spending and a rebound in exports, with economists’ forecasting 5.4 per cent growth for 2018.

The government yesterday scrapped the 6 per cent GST rate, setting it at zero per cent from June 1, meeting a pledge made by Dr Mahathir’s coalition on the campaign trail. That’s set to curb inflation and give a boost to spending. Oxford Economics has estimated that scrapping the GST and implementing other populist spending measures will add 0.2 to 0.4 percentage points to GDP.

The GST move will leave a hole in the budget, which the government hasn’t said yet how it will fill. The Finance Ministry said on Thursday the move will be “cushioned by specific revenue and expenditures that shall be announced soon,” with plans also to re-introduce a sales-and-services tax. The fiscal deficit eased to 3 per cent of GDP last year and Oxford Economics sees that widening to an average of 3.3 per cent over 2018-19. ― Bloomberg