Private spending to drive Malaysia's 2019 growth: CIMB

PRIVATE spending will drive Malaysia in 2019, but the appetite for consumption and investment has shrunk amid slowing growth, according to a report from CIMB on Friday (Dec 14).

Economists Michelle Chia and Lim Yee Ping expect economic growth of 4.6 per cent in 2018 and 4.7 per cent in 2019, crimped somewhat by downsides in palm oil and natural gas production.

Consumer spending could be kept intact - at a more muted growth rate of 6.4 per cent - on initiatives such as government cash transfers to pensioners, as well as efforts to cut living costs.

"On the flipside, we expect restructuring among businesses in response to policy changes by the government to exert some pressure on pockets of the workforce, though labour market conditions and positive wage growth remain supportive of continued growth in private consumption," the analysts wrote.

Although the CIMB economists have deemed the ballooning Budget deficit "manageable, and necessary to regularise the unpaid tax refunds and indirect tax adjustments", they still warned that an oil price lower than US$62 a barrel could be cause for some concern.

Also, fiscal constraints and the cancellation or scale-down of mega-projects would make public consumption and investments "less prominent levers of growth than in past years", they said.

"While this creates space for private investments to crowd in, the upside for capital expenditure may be curtailed by subdued business sentiment, potential business cost increases (subsidy rollbacks, minimum wage hikes, and shortages of foreign labour), policy fluidity and external risks."

The economists cautioned that fixing the economy and government accounts will be no quick and painless task, even in the wake of a watershed vote in May that toppled the Barisan Nasional coalition.