Malaysia sees solid 2018 growth on strong domestic demand, exports

KUALA LUMPUR (Oct 27): Malaysia, whose economic performance has improved sharply this year on the back of stronger commodity prices, expects domestic demand and still-buoyant exports to help drive 5.0% to 5.5% growth in 2018.

Prime Minister Najib Razak, who is under attack in connection with a corruption scandal, is banking on solid headline numbers and populist initiatives in his budget to bolster his chances in an election that must be called by August.

Full-year growth for 2017 is forecast at 5.2%-5.7%, compared with last year’s 4.2%.

The 2017 forecast means Malaysia should have its fastest growth since 2014, after which a crash in commodity prices slowed exports and the ringgit currency weakened sharply, scaring off foreign investors.

The growth and other projections came in the government’s annual economic report, released as Najib began his 2018 budget announcement on Friday.

“With the private sector prevailing as (a) key driver of growth, the government will continue to support economic expansion and safeguard the well-being of the rakyat,” Najib said in the report’s preface, using the Malay word for people.

The current account surplus is projected to increase marginally to 32.9 billion ringgit (US$7.6 billion) in 2018, from the 32.3 billion ringgit estimate for this year.

The report said Malaysia’s fiscal deficit, tracked closely by ratings firms concerned about rising sovereign debt, should narrow to 39.8 billion ringgit, or 2.8 percent of GDP in 2018, slightly better than the 3.0 percent projected for this year.

The government expects inflation to “remain benign between 2.5 and 3.5 percent” next year, tracking slightly lower than the 3.0%-4.0% level forecast for 2017.

Steady progress

A stronger economy and rising oil prices has helped ease pressure on Prime Minister Najib, who has been dogged by a multi-billion dollar scandal tied to state fund 1Malaysia Development Berhad (1MDB), a fund that he helped set up.

U.S. authorities have filed several lawsuits to seize assets it said were allegedly bought using funds misappropriated from 1MDB. Najib has denied any wrongdoing.

In the economic report, the government said it expected all subsectors to register “positive growth” in 2018.

Exports of commodities have rebounded sharply this year. In the first eight months, revenue from natural gas jumped 34.6% to 26.9 billion ringgit from a year earlier and crude oil earnings by 33.2% to 18.2 billion ringgit.

Palm oil exports grew 18.8% to 30.6 billion ringgit over the same period.

Domestic demand will continue to be the main driver of the economy, and is forecast to grow 5.5% to contribute 72.9% to GDP in 2018. Private sector growth is seen at 6.4% in 2017, with a 71.4% share of GDP.

The report said government debt stood at 50.9% of GDP at end-June, compared with 52.7% in 2016.

It did not provide figures on its full-year debt level projection, but said that debt “remains sustainable within the prudent limit” of Malaysia’s self-imposed 55% ceiling.

(US$1 = 4.2325 ringgit) 

News source: The Edge Markets