KUALA LUMPUR, Oct 11 -- Domestic demand is expected to spearhead growth, expanding by four per cent in 2019 and 4.8 per cent in 2020, notwithstanding heightening external headwinds following prolonged trade war and geopolitical tensions.

Major underlying factors, including a stable labour market amid low prices, are expected to remain intact and continue to support domestic activities, said the Ministry of Finance (MOF) in it’s Economic Outlook Report 2020 released today.

It said private sector expenditure which constitutes about 80 per cent of domestic demand, will continue to anchor growth at 5.6 per cent and 5.8 per cent in 2019 and 2020, respectively.

Meanwhile, the Ministry noted that public sector expenditure is estimated to decline by 1.8 per cent in 2019, weighed down by lower investment spending by public corporations but is expected to rebound 0.8 per cent in 2020.

The rebound largely would be driven by an acceleration of projects towards the tail-end of the Eleventh Malaysia Plan coupled with the revival of strategic projects.

Private consumption is expected to grow at a moderate pace of 6.8 per cent in 2019 due to base effect following the removal of Goods and Services Tax (GST) in the second half of 2018, with household spending continuing to be supported by wage growth and favourable employment prospects, especially in the services sector.

The trend in income and labour market is expected to continue in line with the sustained economic activities in 2020, with consumption spending projected to record a growth rate of 6.9 per cent next year, said MOF.

For private investment, MOF said it would grow at a slower pace of 1.5 per cent in 2019, reflecting lower external demand and capacity utilisation rate, particularly in the export-oriented industries.

However, in 2020, investors' sentiment is expected to improve, especially with the resumption of strategic projects and higher exports, particularly in electrical and electronic (E&E) sector, with payment of tax refunds would also provide impetus to private sector activities.

Overall, MOF said the momentum in private investment is projected to expand 2.1 per cent in 2020, concentrated in tourism-related industries in conjunction with the hosting of major international events and Visit Malaysia (VM) 2020.

The Ministry said capital outlays in both years would be concentrated in the services and manufacturing sectors with the E&E, machinery and equipment, chemicals and chemical products and aerospace industries would remain as the priority within the manufacturing sector due to their strong inter-linkages.

“Investments in high value-added areas such as advanced materials, optics and photonics, petrochemicals and pharmaceuticals are projected to attract more investors.

“In the services sector, the investment will focus on regional establishments, health tourism, healthcare, information and communications technology (ICT) services and green technology,” it noted.

On public consumption, MOF said it would remain moderate at two per cent in 2019 and 1.5 per cent in 2020,  in line with the fiscal consolidation path.

Meanwhile, public investment is projected to decline significantly by 8.1 per cent in 2019, primarily due to lower capital outlays by public corporations, especially in oil and gas-related industries, MOF said.

However, public corporations' capital spending, which accounts for about 70 per cent of total public investment, is expected to improve in 2020, resulting in a mild decline of 0.6 per cent in 2020.

“The Government's development expenditure during these two years will remain high and mostly concentrated in the economic and social sectors.

“Investment in economic sector mainly channelled into the transportation system, energy and public utilities as well as trade and industry, while the bulk of expenditure in the social sector is channelled into education and healthcare,” it said.

The report also said with sustained economic activities, gross national income (GNI) in current prices is forecast to increase steadily at 5.5 per cent to RM1.5 trillion in 2019, and is expected to improve further in 2020 at a growth rate of 5.8 per cent to RM1.6 trillion.

Gross national savings (GNS) is expected to increase by 1.4 per cent to RM377.5 billion and with the level continuing to exceed total investment, the savings-investment gap is expected to record a surplus of 2.9 per cent of GNI in 2019, enabling Malaysia to continue to finance its growth, primarily from domestic sources, it said.

In 2020, MOF said GNS is anticipated to expand marginally by 0.8 per cent to RM380.6 billion with the share of GNS as a percentage of GNI remaining high at 24.4 per cent primarily contributed by the private sector.

On another note, MOF said the total investment is expected to increase markedly by 5.2 per cent to RM351.6 billion and account for 22.6 per cent of GNI.

 “With investment increasing faster than savings, the savings-investment surplus is projected to narrow to RM29 billion or 1.9 per cent of GNI. Nevertheless, the amount remains substantial, providing ample liquidity to mobilise long-term productive investment without recourse to external financing,” it added.

-- BERNAMA