Oxford Economics expert sees Malaysia’s 2020 growth slow to 4pc, bucks Putrajaya’s forecast

Syed Jaymal Zahiid


ICAEW Economic Advisor and Oxford Economics Lead Asia Economist, Sian Fenner, speaks during the Q4 2019 ICAEW Economic Update: South-east Asia Report launch in Kuala Lumpur December 5, 2019. — Picture by Choo Choy May

KUALA LUMPUR, Dec 5 — Weaker household spending and slower wage growth amid softening employment are expected to weigh down Malaysia’s economic growth next year, according to the Institute of Chartered Accountants in England and Wales (ICAEW).

The London-based professional body forecasted Malaysia’s 2020 GDP to contract to 4 per cent.

Sian Fenner, the lead Asia economist at Oxford Economics which partners with the ICAEW, said strong household spending has helped Malaysia fend off external shocks on the economy so far, but expects the buffer effect to wear down as the impact of tax-free spending withers, inflation picks up and global trade volatility curbs expansion.

Fenner, who advises ICAEW, added that policy changes like the removal of fuel subsidies is also expected to contribute to the deceleration in consumer spending.

“Surprisingly, Malaysia is holding up quite well,” she said at the institute’s South-east Asia Q4 report launch here today.

“Household spending growth year-on-year was 7 per cent and has constantly stayed at above 7 per cent since 2018.

“But the question is: can this hold up?” she asked.

The ICAEW forecast is far more pessimistic than Putrajaya’s growth projections of 4.8 per cent, suggesting not all economists share the government’s optimistic outlook.

Finance Minister Lim Guan Eng said in October that “sound fundamentals” would spur confidence and drive marginally higher growth of 4.8 per cent in 2020, up from 4.7 per cent in 2019, despite external headwinds.

He said among the factors underpinning the forecast were Malaysia’s strong and trustworthy public institutions, a healthy labour market, low and stable inflation, comfortable current account surplus and a diverse economy.

However, Fanner said the bite from the prolonged Sino-American trade war was already taking its toll on Malaysian exports, and is expected to spill over to next year.

Compounding the problem is the lurking possibility of a recession hitting the US, one of Malaysia’s top four biggest export markets. 

The ICAEW forecast said shrinking exports could cut back expansion plans and put a lid on hiring, dampening confidence both in the labour market and consumer spending. 

The Malaysian government’s deficit target also meant Putrajaya has little leeway for pump priming, although Fanner said a relatively low inflation forecast and a stable ringgit gave Bank Negara Malaysia the option to reduce interest rates.

The ICAEW predicted that Bank Negara Malaysia would reduce the overnight policy rate by a further 25 basis points to 2.75 per cent heading into the first quarter of next year, in line with regional trends.

Overall inflation is forecast at 0.7 per cent in 2019 but likely to rise to 2.1 per cent in 2020, on par with average inflation in the country over the past decade.

Hiring growth eased to 1.9 per cent year-on-year in the third quarter of this year while real wages grew marginally at 0.5 per cent in the same period, according to the institute’s data. 

It predicted wage growth to remain soft throughout next year, rising at a moderate pace compared to 2017-2018.

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