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Nikkei Markets

World Bank lifts Malaysia's 2018 economic growth aim to 5.4%

Shifts in external demand, financial market shocks to weigh on growth prospect

KUALA LUMPUR (Nikkei Markets) -- The World Bank raised its forecast for Malaysia's 2018 economic growth to 5.4% from October's 5.0% projection but warned risks from shifts in external demand and financial market conditions could hurt prospects of the trade-reliant country.

Malaysia's exports growth is likely to be sustained in the first half of this year in line with the rise in global trade, the multilateral agency said in its latest East Asia and Pacific Economic Update released Thursday. Economic growth however could moderate to 5.1% in 2019 and 4.8% in 2020, it said.

Global financial market shocks or weak exports could have "disproportionately negative spill overs" on Malaysia, the World Bank said. "Domestically, risks relate primarily to relatively high level of household and public debt, as well as uncertainties surrounding forthcoming general election."

Malaysia's government forecast pegs economic growth at between 5.5% and 6.0% this year compared with 5.9% expansion in 2017 mainly driven by resilient domestic demand and exports of manufactured goods.

The third-largest Southeast Asian economy is a major exporter of electronics and electrical goods that account for one-third of its total shipments. Manufacturing wages in Malaysia grew 9.4% in the fourth quarter of 2017, almost twice the rate of the wage growth in the services sector.

Malaysia could achieve high-income status between 2020 and 2024, the World Bank said. The government, however, needs to step up structural reforms for sustained longer-term growth and facilitate transition when economic activities remain robust, it said.

A high-income economy is defined by the World Bank as one where the total income per citizen is $12,476 a year or more. Malaysia's per capita gross national income was $9,860 in 2016 and was at par with economies such as Mexico and Thailand, which rank as upper-middle income countries.

"Concurrently, achieving a near-balanced federal budget over the medium term would necessitate a deeper wave of reforms to enhance revenue collection and improve public sector efficiency, including the targeting efficiency of social protection programs," the World Bank said.

Malaysia has been making some progress in reining in its long-running budget deficit that stretches back to the 1997-1998 Asian Financial Crisis. The government has eliminated subsidies - deemed wasteful by economists - on goods such as fuel and sugar as part of its move to adhere to tighter fiscal discipline.

The government has also imposed goods and services tax to cut its reliance on oil receipts. That could help narrow the budget deficit to 2.8% of gross domestic product this year from over 7.0% in 2009, according to government forecast.

--Jason Ng

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