By Stephanie Jacob
The Malaysian economy is expected to see 4% to 5% real gross domestic product (GDP) growth in 2016 driven by domestic demand, said the Finance Ministry in its Economic Report 2015/2016. The annual report is published before the coming year’s federal budget is tabled in Parliament.
The report said 2016 is expected to be a challenging year for the economy as it faced multiple external and internal headwinds. This includes heightened volatility in the financial markets, declining commodity prices, strengthening of the US dollar and the slowdown in China which is expected to have both a direct and indirect impact on the Malaysian economy.
Global growth is expected to remain unexciting and the external sector’s contribution is expected to remain modest in 2016. The goods and services account surplus is expected to narrow to RM63.7 billion from an estimated RM75.1 billion in 2015.
Therefore private sector expenditure will continue to underpin economic growth in 2016. Private consumption is expected to grow by 6.4% (6.8%) and private investment is expected to grow 6.7% (7.3%), said the report.
Growth is expected to be broad-based and all sectors are forecasted to record growth. The services sector is expected to the main driver and the leading creator of job opportunities, growing by 5.4%, lower than the 5.7% in 2015. This means the sector will account for 54% of GDP in 2016.
This is in line with the government’s plans for the services sector to account for 56.5% of GDP, 19% of exports and to provide 9.3 million jobs by 2020.
However in order to achieve this, Malaysia will need to address the skills mismatch and shortages, said the report. It added that access to soft technology and low adoption of information and communications technology, especially among the small and medium enterprises will also need to be improved.
Nominal gross national income (GNI) per capita is expected to increase by 5.6% from RM36,397 to RM38,438 in 2016. As total investments will surpass savings, the savings to investment gap is expected to narrow to between 0.5% to 1.5% of GNI.
Nonetheless the surplus will be adequate to provide ample liquidity in financing domestic economic activity, said the report.
The economy is expected to operate at full employment in 2016, with the unemployment rate remaining below 4% at 2.9% for the year. The report also said that despite the weak ringgit, inflation is expected to remain benign between 2% to 3% and this is attributed to low oil prices and the waning impact of the goods and services tax (GST).
In line with fiscal consolidation plans, the fiscal deficit is expected to further decline to 3.1% of GDP in 2016 (3.2% in 2015). While federal government debt is expected to be 54% of GDP, marginally below the self imposed debt ceiling of 55%.
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