KUALA LUMPUR – The World Bank has projected a lower economic growth rate of 4% for Malaysia for the year, down from 7.8% in 2022.
In its Malaysia Economic Monitor February 2023 report released today, the country’s lower gross domestic product (GDP) is attributed to a challenging global economic climate stemming from the Ukraine-Russia conflict, the Covid-19 pandemic as well as an increase in interest rates.
Previously, the World Bank had forecasted that global economic growth would decelerate sharply to 1.7% in 2023 down to 2.9% in 2022.
“As a highly open economy, Malaysia will continue to face substantial risks emanating from the external environment.
“Shocks to global growth – including higher-than-expected inflation, tighter financial conditions, a deeper slowdown in major economies, a prolonged war in Ukraine, could cause a sharper-than-expected slowdown in global growth,’’ said the report.
It also stated that a drop of 1% point in the GDP growth of G7 nation economies – United States, United Kingdom, Canada, France, Germany, Italy and Japan – as well as China, could lower Malaysia’s growth by 1% and 0.7%, respectively.
The World Bank also projected that Malaysia’s exports to slow to 2.2% in 2023, in line with softening global growth prospects and weakening international trade momentum.
“Similarly, import growth is projected to moderate to 2.1% in 2023 reflecting the slower import growth across consumption, intermediate, and capital goods,’’ added the report.
Inflation to moderate
The World Bank also projected that headline consumer price inflation will fluctuate between 2.5% and 3.0% in 2023, down from 3.3% in 2022.
“This is mainly driven by the easing of global supply constraints and stabilising of commodity prices. This forecast assumes that the ceiling on retail fuel prices and price control measures on selected food items remain in place throughout the year, limiting cost pressures from the prevailing global oil and food prices.
“Meanwhile, underlying inflation, as measured by core inflation (i.e., excluding food and fuel prices), is expected to remain around 3%,’’ said the report.
The report also detailed the need for Malaysia to refocus its policies to support the vulnerable and to rebuild fiscal buffers.
The World Bank suggested that the government move to phase out blanket, broad-based subsidies and move towards a more targeted subsidy framework that would benefit lower-income households is relevant and timely.
The government should also consider updating its poverty line income and multidimensional poverty index, said the report.
“In the same spirit, the government may wish to revisit the current narrow focus on ‘hardcore poor’, as it misses out many vulnerable groups, such as informal and younger workers,’’ it said.
However, what is more crucial is that the government’s current fiscal consolidation plan should include raising its revenue collection, said the report.
“With Malaysia’s revenue level remaining low and trailing comparative peers, it is important to address the persistent decline in revenue collection and explore new sources of revenue.
“As such, efforts to rebuild fiscal space and increase it would have to be driven by both higher revenue collection and better spending efficiency,’’ said the report. – The Vibes, February 3, 2023
