KUALA LUMPUR: Malaysia's economy is projected to moderate to 3.9 per cent this year before bouncing to 4.3 per cent in 2024 on the back of domestic private sector spending, said the World Bank.
The World Bank lead economist Apurva Sanghi said private consumption is expected to expand at a relatively robust rate of 5.2 per cent in 2023.
"This will be sustained by improvements in labour market conditions and the government's ongoing household income support initiatives," he told a media briefing at the World Bank East Asia and Pacific economic update and Malaysia economic monitor today.
The country's gross exports are projected to contract 5.8 per cent, contrasting with a 14.5 per cent growth in 2022, because of subdued global growth prospects and weakening international trade momentum.
Sanghi said the narrowing fiscal space remains a concern, as government tax revenue keeps declining, while rigid expenditures on salaries, pensions and interest payments continue to rise.
This is exacerbated by various spending inefficiencies, including broad-bases fuel subsidies and distortionary price controls.
The government recently introduced its medium-term economic plan, the "Madani Economy,", which aims to reduce the fiscal deficit to 3.0 per cent of gross domestic product or below.
On Oct 13 when presenting its budget for 2024, the government is anticipated to reveal additional details about the subsidy reform plans.
Sanghi said Malaysia's expected improved economy in 2024 will likely be bolstered by improved global and regional markets, oil prices, interest rate differentials and change in international investments position.
Despite the post-pandemic recovery, Malaysia's poverty rate had not returned to its pre-pandemic level, said Sanghi.
According to the latest government estimates, the absolute poverty rate stood at 6.2 per cent in 2022.
"This marks a decline from the pandemic peak of 8.4 per cent in 2020 but is above the pre-pandemic rate of 5.6 per cent in 2019," he said.
This underscores the urgency of strengthening social safety nets and restoring fiscal buffers.
"We believe that it's high time for Malaysia to have a proper medium-term revenue strategy to restore fiscal buffers," said Sanghi.
The economy is expected to face significant external risks. Deeper global growth shocks could potentially result in a more significant slowdown than anticipated.
On the domestic front, key sources of downside risk are linked to uncertainties surrounding domestic inflation.
Higher domestic inflation could weigh on the strength of consumption spending.
An upside shock to inflation may also prompt further monetary tightening.
As the economy continues to grow, it is expected that poverty and income inequality will further decrease, provided it is accompanied by policies that enhance its inclusiveness.
Meanwhile, around 490,000 Malaysian households remain vulnerable and are grappling with the aftermath of Covid-19. This underscores the importance of having effective and well targeted social protection programs.
The government's initiative to establish PADU (Pangkalan Data Utiliti Kebangsaan), the national household socioeconomic database, as a basis for identifying eligible beneficiaries, plays a critical role in ensuring broader coverage and enhanced protection.
Source: https://www.nst.com.my/business/economy/2023/10/962029/malaysias-economy-moderate-2023-rebounding-2024-world-bank