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Nikkei Markets

World Bank trims Malaysia's 2019 growth forecast to 4.6%

External challenges, weak domestic investment growth cloud prospect

Signs of fatigue are evident in the economy as recent data show Malaysia's economic expansion pace decelerated to 4.5% in the first three months of the year following slowing domestic demand.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- The World Bank Monday trimmed its 2019 economic growth forecast for Malaysia to 4.6% from 4.7% citing external headwinds arising from the U.S.-China trade tension and weak investment growth.

The multilateral agency, which forecasts the third-largest Southeast Asian economy to expand at the same pace next year, still expects the country to achieve high-income status by 2024. In the nearer term, Malaysia's relatively high levels of public debt will continue to constrain fiscal space, it said.

"Malaysia's growth outlook continues to face downside risks with potential escalation of US-China trade tensions and a more subdued business environment," Country Director Mara Warwick said in administrative capital Putrajaya. "We are still optimistic that we will see recovery in global trade returning to its trend rate."

Since sweeping to power in a shock May 2018 election, the new Alliance of Hope coalition government has scrapped several costly state-backed infrastructure projects and put others on review as Prime Minister Mahathir Mohamad seeks to mend Malaysia's finances amid mounting government debt.

A transition in power, the first since Malaysia gained independence from the Great Britain in 1957, prompted several corporates and investors to hold back investments pending policy clarity. That has weighed on economic growth at a time when U.S. and China are caught in a tariff battle.

"Moving forward, we expect more headwinds with growing uncertainty of global economic environment, particularly with geopolitics playing greater role in shaping economic policies in the region," Minister of Economic Affairs Azmin Ali said.

Although the trade-reliant economy is vulnerable to global factors, its growth is being increasingly shaped by domestic demand fueled by private appetite, Azmin said. "Private consumption is expected to remain the mainstay of growth in near future," he added.

The government plans to spend 45 billion ringgit ($10.9 billion) through this year in more than 4000 development projects to support growth, he said. "With resumption of several large-scale projects, these measures will be our growth drivers for this year and the next."

Signs of fatigue are evident in the economy as recent data show Malaysia's economic expansion pace decelerated to 4.5% in the first three months of the year following slowing domestic demand.

The government has revived several projects, including a mammoth $11 billion rail project connecting its east coast states with the country's capital in recent months following re-negotiation with the contractors.

Further, Bank Negara Malaysia cut its overnight policy rate for the first time in nearly three years in May to perk up growth in a slowing economy. Gross domestic product will likely grow 4.3%-4.8% this year compared to 4.7% in 2018, according to official forecasts.

--Yimie Yong

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