KUALA LUMPUR -- Malaysia's economy grew 5.9% year-on-year in 2017, but the outlook may not be so rosy for 2018, as many analysts predict a slowdown that would present a challenge for Prime Minister Najib Razak with elections fast approaching.
Gross domestic product figures for 2017 announced on Wednesday indicated healthy growth that was sustained largely by private sector spending amid low unemployment. In the final quarter alone, GDP expanded by 5.9%, driven by all economic sectors except mining.
Najib has repeatedly cited investment growth in the private sector as a key government achievement. The World Bank had revised upward its growth forecast for the country "not twice but three times," he told investors at a recent international symposium.
Growth will remain "favorable" in 2018 with domestic demand continuing as the key driver, according to a central bank statement. But government projections foresee a deceleration, putting growth at between 5% and 5.5% for the year.
Analysts warn of an impending slowdown on the back of subsiding global growth. Tellingly, Malaysia's economy grew by 6.2% in the July to September period, and the deceleration in the final quarter was down to weaker investment and private consumption growth, observed Capital Economists.
The research company added that the pace of growth is likely to cool further, even as the economy benefits from rising investment in the form of large Chinese-backed infrastructure projects, such as the construction of a 688km railway and two major ports.
Spending has been muted in the run-up to Friday's Chinese New Year celebrations. A trader in Kuala Lumpur's Chinatown said she had only been able to sustain sales of her cookies because she had not raised prices. "We had to maintain the same price as last year to make our customers happy. Only then they would buy more boxes," she said.
Malaysia's retail industry contracted 1.1% in the third quarter of last year. Grocery store sales fell by 5%, according to Ameer Ali Mydin, managing director of a local supermarket chain. "I think people just don't have the money [to spend]," he was quoted as saying on a radio news program on Feb. 5.
His claims were immediately refuted by the government, saying grocery store sales were not the only benchmark for gauging the real economy.
The rising cost of living is one of the main issues faced by lower- and middle-income households, many of whom are supporters of the ruling party.
For Najib, who is aiming to win a third term in office, keeping a lid on the cost of living and sustaining private sector spending will be major concerns ahead of the election.