Malaysia (Commonwealth Union)_The World Bank Group forecasts that Malaysia’s economy will grow at a more moderate rate of 4.3% in 2023, supported by domestic demand despite an expected slowdown in external demand, and that private consumption growth will remain strong, but at a slower rate of 6.3% in 2023 compared to 11.3% in 2022. According to the World Bank, economic growth is supported by progress in labor market conditions and ongoing income support measures from the government, with investment expected to improve by 4.4% in 2023 compared to 6.8% in 2022, reflecting the continued flow of capital investments in the private and public sectors.
In the meantime, inflation is expected to fall to between 2.5% to 3% in 2023 (compared to 3.3% in 2022) as global supply restrictions relax and commodity prices stabilize. In its Macro Poverty Outlook Country-by-Country Analysis and Projections for the Developing World today, the group stated that as a highly open economy, Malaysia will continue to confront significant external environmental concerns. This involves strict global financial conditions, a high slowdown in major economies, and a prolonged Russian invasion of Ukraine, which could result in a stronger-than-anticipated slowdown in global growth.
According to the World Bank, on the domestic front, the major sources of negative risk are inflation uncertainty and relatively high debt levels, which might weigh more heavily on domestic demand. The report further added that poor and vulnerable households that are most impacted by the pandemic may take longer to recover in the future, highlighting the need for focused and efficient social protection programs. Thus, the government’s proposal to update its poverty line income and multidimensional poverty index is both timely and essential to guarantee that the measures are compatible with Malaysia’s present living standards.
In addition, the World Bank highlighted that Malaysia’s financial space will continue to shrink as salaries, pensions, and interest payments continue to rise while the country’s revenue continues to decline. The government resubmitted a revised budget in February 2023, following the inauguration of a new administration after the general election. The new administration announced in its budget address that it expects the financial deficit to fall from 5.6% of gross domestic product in 2022 to 5.0% in 2023.
The administration also revealed its intention to introduce the Fiscal Responsibility Act this year. While overall inflationary pressures were restrained at 3.3% in 2022 (compared to 2.5% in 2021), increasing food and energy costs have contributed to rising concerns around a greater cost of living and food insecurity, especially among disadvantaged families. According to projections from the Food and Agricultural Organization, the frequency of severe food insecurity has increased in Malaysia since 2016, and the prevalence of moderate or severe food insecurity between 2019 and 2021 was 15.4%, or five million people.
