KUALA LUMPUR, Dec. 13 (Xinhua) -- The International Monetary Fund (IMF) projected the Malaysian economy to grow at 4.7 percent this year, and 4.5 percent to five percent next year, underpinned by domestic demand.
Nada Choueiri, who led an IMF team to Malaysia for the 2019 Article IV Consultation, concluded in a statement upon the completion of the visit on Wednesday that the Malaysian economy has shown resilience in recent years and continues to perform well.
"Real gross domestic product (GDP) growth is moderating in line with expectations and is projected at 4.7 percent for 2018, driven by domestic demand. Headline inflation is declining and is expected to average around 1.1 percent this year," she said.
The country's credit growth has rebounded recently, and capital outflows have been manageable. However, the current account surplus is projected to decline to 2.1 percent of GDP, she added.
While the trade tensions are expected to have an overall adverse impact on Malaysia's growth next year, the real GDP growth is projected at 4.5 to 5.0 percent, with domestic demand remaining the main driver of growth.
Inflation should average 2.2 percent, as the effect of the goods and services tax (GST) removal dissipates, according to the statement.
"The risks to the growth outlook are to the downside. On the external side, Malaysia is vulnerable to rising protectionism, a sharp tightening of global financial conditions, and weaker-than-expected growth in trading partners," said Choueiri.
Domestically, contingent liabilities could necessitate additional measures to ensure medium-term fiscal sustainability, she added.
"While the budget deficit projected for 2018 represents a delay to the fiscal adjustment, the government's planned pace of fiscal consolidation for 2019 is appropriate and will help build buffers and maintain financial market confidence," she said.
In the medium term, she opined that Malaysia's fiscal policy should follow a gradual consolidation path, with the composition of adjustment to be improved to make it more revenue based, making room for increased social spending to support inclusive growth.
"Malaysia's monetary policy framework has performed well, delivering price and output stability. The current broadly neutral monetary policy stance is appropriate given close-to-potential growth, no inflationary pressures, and gradually tightening financial conditions. Continued reliance on exchange rate flexibility and macroeconomic policy adjustments should be the first line of defense against external shocks," Choueiri said.
She is also of the view that Malaysia's financial system is well positioned to cope with standard shocks, with bank profitability and liquidity sound, and the corporate sector is only moderately leveraged.
Household debt is high, but declining as a share of GDP, and risks in the housing market appear manageable, she added.
"Although the financial sector is resilient at present, the authorities' close monitoring and active consideration of measures to mitigate risks is welcome," she said.
