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The Malaysian economy is showing resilience early in the year, with solid manufacturing wage gains and tight labour conditions buttressing the domestic economy, and robust foreign demand supporting exports. Capital expenditure has also increased due to higher private and public investment.

Against this backdrop, economic growth is expected to moderate in the first quarter of 2018, a slowdown that will be compounded by rising debt servicing costs and gradual household deleveraging. Nonetheless, a solid outlook for consumer spending, a pick-up in infrastructure investment and a boost ahead of the elections bode well for this year’s GDP forecast. The Malaysian GDP is expected to expand a healthy 5.3% in 2018 and 5.0% in 2019. The recently approved Trans-Pacific Partnership should boost Malaysia’s long-term economic prospects, opening access to new markets.

But growth is not all that a country lives on.

One pressing issue is that the benefits of this strong growth do not accrue proportionately to all Malaysians. There is substantial dissatisfaction with the rising cost of living, particularly among the bottom 40 per cent of income earners in urban areas. Low-income households are also concerned about car ownership, housing, healthcare and other unavoidable expenditures that cut into household income. The issue of rising healthcare cost and housing costs has placed tremendous pressure on household incomes which has not risen in tandem with the rising cost of living.

Both healthcare and affordable housing are long-term issues. A more immediate concern is Malaysia’s high household debt: the household debt-to-GDP ratio is a staggering 88.4 per cent. Equally worrisome is Malaysia’s high public debt. In 2016, the public debt-to-GDP ratio was 52.7 per cent.

The government’s commitment to high contingent liabilities compounds Malaysia’s debt issue. Government-guaranteed liabilities stood at 13 per cent of GDP in 2011 and 15 per cent in 2016, but such a comparison might miss the complexities of the risk that are specific to each country. Even if the government is selective in its choice of projects, high contingent liabilities expose the economy to risk.

Issues such as the weak ringgit, fiscal deficit and support for the disadvantaged have received adequate attention this year. A different set of questions will now need attention if Malaysia is to continue its good streak from 2017 into 2018.



Royale Chulan

Kuala Lumpur
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