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Economy

World Bank trims Malaysia's 2020 growth forecast to 4.5%

Sluggish domestic wage rise dampens activity amid global uncertainty

The latest September-ended Malaysia companies' quarterly earnings have largely disappointed investors, already spooked by lingering U.S.-China trade tension and concerns over slowing global economic growth.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- The World Bank Monday trimmed its forecast for Malaysia's economic growth in 2020 to 4.5% from October's estimate of 4.6% following weaker-than-expected investment and exports in recent months.

Preserving fiscal space will be vital to mitigate potential impact of any shock amid global uncertainty, the multilateral agency said in a statement. The government can ramp up revenue without affecting low-income households with progressive personal income tax and broadening consumption tax, it said.

"More than ever, we need to scale up investments in people to encourage sustainable, inclusive economic growth," said Mara Warwick, country director at World Bank. "Malaysia can make policy decisions to combat inequality and improve the lives and opportunities of the poorest."

Growth of the third-largest Southeast Asian economy has decelerated as consumer spending and business investment slowed, sparking worries at time when uncertainties from U.S.-China trade tensions have hurt its economy that remains vulnerable to global shocks.

For nearly two decades, Malaysia's unemployment rate has hovered around 3%, a reading that economists consider as full employment. However, wage growth has been sluggish amid rising cost of living.

While median incomes continued to outpace inflation, income growth rates for poorer Malaysians slowed between 2014 and 2016, the World Bank noted in a new report. Wage growth for younger workers has been sluggish, persistently trailing the earnings of older workers, the report said.

The government agrees with the World Bank's finding that one of the root problems with the cost of living is the stagnating income growth, Domestic Trade Minister Saifuddin Nasution Ismail said at the report's launch.

Malaysia is exploring measures to reduce prices of food for consumers and raising producers' income by eliminating layers of middlemen in the supply chain, Saifuddin said. Further, the government is studying various proposals and initiatives to raise income of the people, he said.

"For the coming year, this will be one of my main priorities in our efforts to reduce the cost of living," he said.

Easing cost of living pressures requires a mix of short-term measures that should strengthen social safety nets, and long-term policies involving structural reforms and other measures, the World Bank said.

Over the short-term, efforts can be made to re-evaluate existing price controls, to deepen social assistance benefits, to raise the financial literacy of Malaysian households, and to ensure adequate supply of affordable housing, said World Bank's Warwick.

"Over the longer-term, deeper structural reforms will be necessary to boost market competition, to ensure an adequate supply of affordable housing and to increase people's income levels," she added.

--Jason NG

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