KUALA LUMPUR – The World Bank has slashed its growth forecast for Malaysia from 2016 through 2018 due to the subdued global economy weighing on the country’s prospects.
In its latest forecasts, the global financial institution predicted Malaysia’s gross domestic product (GDP) would slow to 4.2% this year from 5% in 2015 because of the weak global demand for oil and manufactured exports. This contrasted with its April forecast of a 4.4% growth for the country for 2016.
According to the World Bank, Malaysia’s GDP growth would likely rebound to 4.3% next year before accelerating further to 4.5% in 2018. This compared with its earlier forecast of 4.5% and 4.7% GDP growth for the country for 2017 and 2018, respectively.
“The slowing in growth – but still at a reasonable pace – is largely because of the impact of subdued global demand on its open economy.
“And this is compounded by low commodity prices,” the World Bank’s chief economist for the East Asia and Pacific Region, Sudhir Shetty, commented on Malaysia’s growth prospects this year.
He, however, said 2017 and 2018 would present better prospects for Malaysia due to the anticipated recovery in the export of manufactured goods and commodity prices.
“We anticipate slightly faster trade growth and improving commodity prices,” Sudhir told the Malaysian media here via a video conference from Washington DC yesterday.
“We do see oil prices beginning a slight recovery in 2017, but they are not going to get back to anywhere near the levels they were in 2014,” he added.
Crude oil prices on the international benchmark Brent had improved to around US$51.60 per barrel (RM213.42) yesterday from around US$48 a week ago after the Organisation of the Petroleum Exporting Countries (Opec) recently struck a deal to limit crude output for the first time since 2008 to ease a global glut. Crude oil prices started to decline in the last two years after peaking at US$115 per barrel in mid-June 2014.
According to the World Bank, Opec’s decision to cut crude oil production would only have a limited impact on crude oil prices.
“Opec’s ability to affect oil prices is less significant now than it was 30 years ago because so much oil now comes from non-Opec producers,” Shetty explained.
“So, we only expect oil prices to rise gradually in 2017 and 2018,” he said.
In its newly released East Asia and Pacific Economic Update, entitled “Reducing Vulnerabilities”, World Bank said growth in developing East Asia and Pacific is expected to remain resilient over the next three years, with GDP expected to expand at 5.8% this year and 5.7% in 2017-2018.
China, in particular, was expected to continue its gradual transition to slower, but more sustainable, growth, from 6.7% this year to 6.5% in 2017 and 6.3% in 2018, World Bank said in its semiannual review of the region’s developing economies.
“Despite the favorable prospects, the region’s growth is subject to significant risks. A sharp global financial tightening, a further slowdown in world growth or a faster-than-anticipated slowdown in China would test East Asia’s resilience,” said Shetty said.
“These uncertainties make it critical for policymakers to reduce financial and fiscal imbalances that have built up in recent years,” he added.
On the United Kingdom’s referendum to leave the European Union (EU), or Brexit, Shetty said the full impact on Asia’s economy had yet to be fully understood.
“We do not know the full impact of Brexit until it actually happens. We will become clearer once we know the details of how Britain intends to divorce itself from the EU,” he said.
UK Prime Minister Theresa May said recently the formal process of Brexit would begin by March 2017.
Separately, Shetty said the US Federal Reserve (Fed) would likely raise interest rates by the end of this year.
The rate increase was expected to be minimal to avoid creating panic in financial markets, he said.