World Bank: Malaysia's economic growth to moderate at 4.3 per cent this year

The World Bank said the economic growth is supported by improvements in labour market conditions as well as ongoing income support measures from the government, with investment projected to increase by 4.4 per cent in 2023 compared with 6.8 per cent in 2022, reflecting the continued flow of capital investments in the private and public sectors.

"Meanwhile, inflation is projected to moderate to between 2.5 per cent and 3.0 per cent in 2023 (2022: 3.3 per cent) as global supply constraints ease and commodity prices stabilise.

"As a highly open economy, Malaysia will continue to face substantial risks emanating from the external environment. This includes tighter global financial conditions, deeper slowdown in major economies and a prolonged Russia's invasion of Ukraine, which could cause a sharper-than-expected slowdown in global growth," the group said in its Macro Poverty Outlook Country-by-country Analysis and Projections for the Developing World today.

The World Bank also elaborated that on the domestic front, the main sources of downside risk relate to the uncertainty surrounding inflation and relatively high debt levels, which could weigh more heavily on domestic demand.

"Going forward, poor and vulnerable households who are most affected by the pandemic may take longer to recover, reinforcing the need for effective and targeted social protection programmes. The government's plan to update its poverty line income and multidimensional poverty index is therefore both timely and important to ensure the measures are commensurate with Malaysia's current living standards," it added.

The World Bank also emphasised that the challenges faced by Malaysia include the further narrowing of the fiscal space, as rigid expenditures in salaries, pensions, and interest payments continue to increase and concurrently, the country's revenue remains on a declining trend.

"The government re-tabled a revised budget in February 2023 after a new administration took office following the general election. In the budget speech, the new government has indicated that it expects the fiscal deficit to decline to 5.0 per cent of Gross Domestic Product from 5.6 per cent in 2022.

"The government also indicated that it plans to table the Fiscal Responsibility Act this year. While overall inflationary pressures remained contained at 3.3 per cent in 2022 (2021: 2.5 per cent), higher food and energy prices have contributed to the rising concern over higher cost of living and food insecurity, particularly in vulnerable households.

Citing estimates from the Food and Agriculture Organisation, the incidence of severe food insecurity has been increasing in Malaysia since 2016 and between 2019 and 2021, the prevalence of moderate or severe food insecurity was 15.4 per cent, equivalent to five million people.