KUALA LUMPUR: Malaysia’s economy is expected to grow at a slower pace of an average annual rate between 4.5% and 5.5% in the remaining period from 2018 to 2020, supported by sustained domestic demand, especially from private sector expenditure.
According to the Mid-Term Review of the 11th Malaysia Plan released on Thursday, that for 2016 to 2020, the growth would be in the range of 4.5% to 5.5%. This is slower than the earlier forecast of 5% to 6%.
Based on the growth target, gross national income (GNI) per capita is expected to reach RM47,720 or US$11,700 in 2020, in line with moderate inflation.
“This is about 6% below the estimated minimum income threshold1 of a high-income nation. Malaysia is expected to achieve this income threshold by 2024.
“However, if growth conditions improve significantly due to a more benign external economic environment, dynamic domestic growth and a stronger ringgit, the target of achieving a high-income status may be realised earlier,” it said.
The report pointed out the goal of becoming a developed nation goes beyond merely attaining a high-income level as it must also be accompanied by higher purchasing power.
It said the aspiration of becoming a developed nation requires Malaysia to progress in many other dimensions, such as economics, politics, culture, psychology, spiritual and social.
Economy
Private consumption will continue to be a major source of growth and is expected to expand at an annual average rate of 7%. For 2016-2020, the revised target is 9.3% and for 2018-2020, 9.2%. The revised targets are lower than the original forecast of 9.5% during the period of the plan.Its share to GDP to reach 56.9% in 2020.
This target is based on the expected favourable labour market conditions and continued growth of income levels.
Public consumption is expected to grow moderately by 0.3% per annum, with emphasis on optimising public expenditure without affecting the quality of public service delivery.
For 2016-2020, the revised target is 2.4% and for 2018-2020, 1.4%. The revised targets are lower than the original forecast of 5.9% during the period of the plan.
“The government will further strengthen the ecosystem for private investment to continue as the growth catalyst, with a targeted growth of 5.7% per annum and the contribution to GDP increase from 12.3% in 2010 to 17.8% in 2020.
“The efforts will be continued to ensure quality private investment that creates more high paying skilled jobs, particularly in the manufacturing and services sector,” it said.
Public investment is projected to contract at 0.8% per annum, due to the revision of major infrastructure projects such as the East Coast Rail Link and High Speed Rail.
The revised target from 2016 to 2020 is 0.9% and for 2018-202 is 0.5% versus the earlier forecast of 5.2% for the five years.
However, the Government remains committed to meet the socioeconomic needs of the rakyat by undertaking high-impact projects. In addition, public school projects across the nation as well as rural water and electricity supply projects in Sabah and Sarawak will further enhance the wellbeing of the rakyat.
Services and manufacturing sectors will continue to drive growth for the remaining Plan period.
Services sector to sustain the growth momentum at an annual average rate of 6.3% for 2018-2020, spurred by various initiatives through the Services Sector Blueprint as well as efforts in promoting Digital Free Trade Zone and productivity improvements under the MPB.
For the five-year period, growth is forecast at 6.2% and 6.3% in 2018-2020. This is a decline from the 6.9% under the original target.
Consumption-related services -- the retail trade, accommodation as well as food and beverage
sub-sectors -- to benefit from higher household income as well as greater tourist spending.
Manufacturing sector to grow at 4.5% per annum, underpinned by shift towards high value-added, diverse and complex products, particularly in the fields of electrical and electronics, machinery and equipment, chemicals and chemical products, aerospace and medical devices.
Export-oriented industries to contribute significantly to manufacturing sector’s growth, underpinned by rising demand for cloud data centres and electronics in the automotive industry as well as emerging artificial intelligence applications for smart cities and autonomous vehicles.
Construction sector is targeted to moderate at an annual average rate of 4.3% due to slower growth of residential and non-residential sub-sectors.
However, industrialised building system and ongoing civil engineering projects such as the Mass Rapid Transit 2 and Pengerang Integrated Petroleum Complex in Johor are expected to contribute to the growth of the sector.
Overall growth momentum of the government civil engineering subsector expected to dampen due to reprioritisation of major infrastructure projects to rationalise the fiscal position of the Federal Government.
Agriculture sector to register higher growth at 2% per annum, boosted by higher production of palm
oil, rubber and food crops. Industrial commodities continued to be the mainstay with the contribution targeted at 56.4% of the total value added in 2020
Mining sector is targeted to grow marginally at 0.1% due to the extended commitment to cut production by the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC countries as well as the disruption of natural gas supply in the Sabah-Sarawak Gas Pipeline in 2018.
However, natural gas output to surge following the construction of the PETRONAS floating liquefied natural gas 2 at the Rotan field, offshore Kota Kinabalu, Sabah. This facility is scheduled to be completed in 2020 to meet expected higher global demand for low-carbon energy
Productivity
During the remaining Plan period, 2018-2020, the multi-factor productivity is targeted to improve by 2% per annum. Contribution to GDP growth is expected to reach 40.9%.
Contribution of capital and labour inputs to GDP growth is targeted at 40.6% and 18.5%, respectively.
Overall labour productivity to expand at an annual average rate of 2.9%, reaching a target of RM88,450 per worker by 2020.
International Trade and Balance of Payments
Growth of gross exports in the remaining Plan period to be sustained at an annual average rate of 6.2%. This will be supported by firmer commodity prices and continued demand from trading partners.
Gross imports estimated to rise by 6.1% per annum, led by imports of capital and intermediate goods.
Trade balance remains in surplus, targeted at RM118.3 billion in 2020.
Current account of the balance of payments is projected to remain in surplus at RM39.9bil or 2.5% to GNI in 2020 compared with RM40.3bil or 3.1% to GNI in 2017.
Higher surplus in the goods account amid continued deficit in the services and income accounts are expected to contribute to the increase in the current account surplus.
The rise in travel receipts and the enhancement of modern services exports are targeted to lower the deficit in the services account.
The income accounts are expected to remain in deficit, stemming from the continued repatriation of income by foreign investors and remittances by foreign workers in Malaysia.
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