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Economy

Malaysian think tank projects faster economic growth next year

KUALA LUMPUR (NewsRise) - A Malaysian government-backed think tank Tuesday forecast economic growth to accelerate to between 4.5% and 5.5% next year helped by stronger domestic demand and exports recovery.

The government should unveil an expansionary budget for the next year with some fiscal measures to further strengthen domestic demand, and offer incentives to encourage private investments, Zakariah Abdul Rashid, an executive director of the Malaysian Institute of Economic Research, also known as MIER, said at a news briefing.

"We have to rely on private investment and government consumption" to keep up the domestic demand-led growth, he said. While private consumption levels remained "high" despite a recent slowdown, Zakariah said the government could hand out cash to low-income groups for short-term boost. Malaysia's government, which has ruled uninterruptedly since 1957 when the country got independence from the Great Britain, often relies on a populist practice of giving cash to low-income population to boost consumer spending.

The economist's comments come ahead of the annual federal budget for the next year that Prime Minister Najib Razak, who is also the country's finance minister, will announce on October 21.

Growth at Southeast Asia's third-largest economy has decelerated for the past five consecutive quarters as exports dragged, although domestic demand has largely held up, thanks to low unemployment that supported private consumption.

A slump in global oil prices from its triple-digit peak in mid-2014 has weighed on Malaysia's growth and government finances. Oil and gas, which accounted for 11% of Malaysia's total exports in 2015, is also a major source of revenue for the government.

In the second quarter of this year, Malaysia's economy expanded 4.0% year-on-year, its slowest pace in seven years. For the whole year, growth of the trade-reliant nation will likely decelerate to between 4.0% and 4.5% this year after a 5.0% expansion in 2015, the government forecasts.

In addition to downside risks from slower global growth, MIER's Zakariah also flagged rising public and private debts that cloud medium- and long-term prospects.

Elevated household debts have limited consumers' ability to secure fresh loans, hurting sales of big-ticket items such as cars and homes in Malaysia. Consumer sentiment has weakened while business conditions remained subdued in the third-quarter, according to a latest surveys published by MIER.

"While the government [appears] quite serious about maintaining fiscal deficit [target]," it would need to keep economic growth humming ahead of national elections, Zakariah noted. "It's an art of balancing." Malaysia must call for elections by August 2018.

Malaysia has been seeking to rein in its chronic budget shortfall that stretches back nearly two decades. This year, the government aims to trim its fiscal deficit to 3.1% of gross domestic product from 3.2% of GDP in 2015. Public debt, meanwhile, hovers close to the government's self-imposed ceiling of 55% of GDP.

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