Malaysia Economic Monitor : Making Ends Meet

Malaysia's economy is continuing to see growth, but the pace of expansion has moderated. Growth slowed to 4.4 percent in Q3 2019, as subdued global conditions and heightened uncertainty continued to weigh on the economy. Investment and trade activity was softer than expected during the quarter, and indicators suggest overall business sentiment remains muted. In 2020, Malaysia's economy is projected to expand at a relatively moderate pace, amid continued uncertainty and external headwinds. The GDP growth rate is projected to reach 4.5 percent in 2020. Investment is expected to improve but remain subdued over the near term, with both the public and private sectors adopting a cautious stance towards capital spending. Similarly, the softness in export growth is likely to persist into next year, mirroring the continuing subdued global growth. Short-term policies should focus on measures to boost resilience and protect the vulnerable. Federal debt has increased, and government revenue as a share of GDP is expected to decline further next year. In the context of a more uncertain economic environment, it is vital for Malaysia to preserve fiscal space to enable it to mitigate the impact of any negative shocks to the economy. Increased progressivity in the personal income tax framework and an expansion of current tax measures could enable the government to both increase revenues and improve redistribution. Malaysia's weakening trade and investment activity, amid challenging external conditions, underscores the need to improve private sector confidence and strengthen investment competitiveness. With sluggish global demand and increased protectionist tendencies among the majoreconomies, a sustained commitment to deepening regional integration and addressing trade barriers is vital to preserve a vibrant trading environment and build investors' confidence. It is also important to strengthen Malaysia's competitiveness in attracting quality investments and to maximize the gains from tax expenditures with better targeting of investments towards economic upgrading, high-value job creation and inclusive growth.