Bank Negara Malaysia has lowered Malaysia’s economic growth forecast for 2018 to 5% from its earlier estimate of 5.5%-6%.
This comes on the back of Q2’s lower than expected GDP growth of 4.5%, well below the estimates of over 5% by analysts. The softer growth can be attributed to lower government spending and lower-performing primary industries.
Growth in the mining sector contracted due mainly to unplanned supply outages, while the agriculture sector was affected by production constraints and adverse weather conditions. The review and cutback in construction megaprojects may also see a reduction in the multiplier effect.
Nevertheless, growth in the service sector and manufacturing sector remains strong. It is expected that these sectors will drive the growth in GDP for the second half of 2018. Private sector demand also remains strong, with the tax holiday resulting from the abolishing of GST seeing a rise in domestic consumption.
External factors, mainly surrounding the uncertainty of US-China trade relations, has also impacted growth. Malaysia’s position as a key trading partner with both China and the US means that it is exposed to the ongoing trade dispute.
However, Bank Negara is working on a mid-term strategic plan, to further sustain the country’s economic growth moving forward. Governor Datuk Nor Shamsiah Mohd Yunus hints that the plan could include the introduction of new forms of taxes to raise higher revenue for the government. This is mainly to address the shortfall in revenue, following the removal of GST.