Domestic demand to spearhead growth, expands 4.8 pct in 2020

Domestic demand is expected to spearhead growth, expanding by four percent in 2019 and 4.8 percent in 2020, notwithstanding heightening external headwinds following a prolonged trade war and geopolitical tensions.

Major underlying factors, including a stable labour market amid low prices, are expected to remain intact and continue to support domestic activities, said the Ministry of Finance (MOF) in its Economic Outlook Report 2020 report released today.

It said private sector expenditure which constitutes about 80 percent of domestic demand, will continue to anchor growth 5.6 percent and 5.8 percent in 2019 and 2020, respectively.

Meanwhile, the ministry noted that public sector expenditure is estimated to decline 1.8 percent in 2019, weighed down by lower investment spending by public corporations but is expected to rebound 0.8 per cent in 2020.

The rebound largely would be driven by an acceleration of projects towards the tail-end of the 11th Malaysia Plan coupled with the revival of strategic projects.

Private consumption is expected to grow at a moderate pace of 6.8 percent in 2019 due to base effects following the removal of Goods and Services Tax (GST) in the second half of 2018, with household spending continuing to be supported by wage growth and favourable employment prospects, especially in the services sector.

The trend in income and the labour market is expected to continue in line with the sustained economic activities in 2020, with consumption spending projected to record a growth rate of 6.9 percent next year, said MOF.

For private investment, MOF said it would grow at a slower pace of 1.5 percent in 2019, reflecting lower external demand and capacity utilisation rate, particularly in the export-oriented industries.

However, in 2020, investors' sentiment is expected to improve, especially with the resumption of strategic projects and higher exports, particularly in electrical and electronic (E&E) sector, with payment of tax refunds would also provide impetus to private sector activities.

Overall, MOF said the momentum in private investment is projected to expand 2.1 percent in 2020, concentrated in tourism-related industries in conjunction with the hosting of major international events and Visit Malaysia 2020.

The ministry said capital outlays in both years would be concentrated in the services and manufacturing sectors with the E&E, machinery and equipment, chemicals and chemical products and aerospace industries would remain as a priority within the manufacturing sector due to their strong inter-linkages.

“Investments in high value-added areas such as advanced materials, optics and photonics, petrochemicals and pharmaceuticals are projected to attract more investors.

“In the services sector, the investment will focus on regional establishments, health tourism, healthcare, information and communications technology (ICT) services and green technology,” it noted.

On public consumption, MOF said it would remain moderate at two percent in 2019 and 1.5 percent in 2020, in line with the fiscal consolidation path.

Meanwhile, public investment is projected to decline significantly by 8.1 percent in 2019, primarily due to lower capital outlays by public corporations, especially in oil and gas-related industries, MOF said.

However, public corporations' capital spending, which accounts for about 70 percent of total public investment, is expected to improve in 2020, resulting in a mild decline of 0.6 percent in 2020.

“The government's development expenditure during these two years will remain high and mostly concentrated in the economic and social sectors.

“Investment in economic sector mainly channelled into the transportation system, energy and public utilities as well as trade and industry, while the bulk of expenditure in the social sector is channelled into education and healthcare,” it said.

The report also said with sustained economic activities, gross national income (GNI) in current prices is forecast to increase steadily at 5.5 percent to RM1.5 trillion in 2019, and is expected to improve further in 2020 at a growth rate of 5.8 percent to RM1.6 trillion.

Gross national savings (GNS) is expected to increase by 1.4 percent to RM377.5 billion and with the level continuing to exceed total investment, the savings-investment gap is expected to record a surplus of 2.9 per cent of GNI in 2019, enabling Malaysia to continue to finance its growth, primarily from domestic sources, it said.

In 2020, MOF said GNS is anticipated to expand marginally by 0.8 percent to RM380.6 billion with the share of GNS as a percentage of GNI remaining high at 24.4 percent primarily contributed by the private sector.

On another note, MOF said the total investment is expected to increase markedly by 5.2 percent to RM351.6 billion and account for 22.6 percent of GNI.

“With investment increasing faster than savings, the savings-investment surplus is projected to narrow to RM29 billion or 1.9 percent of GNI. Nevertheless, the amount remains substantial, providing ample liquidity to mobilise long-term productive investment without recourse to external financing,” it added.

- Bernama