KUALA LUMPUR, July 2 (Xinhua) -- The World Bank maintains Malaysia's economic growth forecast at 5.4 percent following the country's general election in May, as it foresees stronger growth in household consumption.
World Bank macroeconomics, trade and investment global practice lead economist Richard Record said on Monday that the bank expects Malaysia's growth to remain strong in near term.
According to him, growth was primarily driven by the continued strength of household spending, as employment conditions and consumer sentiment remained strong during significant political changes.
Household spending, which remains the primary driver of Malaysia's economic growth, is projected to strengthen over the year due to new policy measures, including temporary suspension of the consumption tax, he said when launching the World Bank Malaysia Economic Monitor.
The exports demand, which has been driven by sustained global demand for Malaysia's electrical and electronics exports, is also expected to continue and support the positive growth.
The Malaysian economy has slowed to 5.4 percent in the first quarter after expanding 5.9 percent in the fourth quarter last year.
While Malaysian government has introduced several policy changes in line with its election mandate, the World Bank warned that it needs to be managed carefully to minimize additional risk to the country.
Increased uncertainty around growth and fiscal outlook amid the political transition, and relatively high level of private and public-sector debt, are Malaysia's two main domestic risks, according to Record.
However, he sees Malaysia's debt risk is limited as majority of the debt is funded in local currency.
Externally, he said, disorderly adjustments to global financial market conditions, as well as increased protectionist tendencies and trade tensions in major economies are the two key risks.
"For now, it is important for us to monitor the trade tensions. However, Malaysia has a diversified exports base in lots of different products, goods and services, and in different markets. Thus, we are still optimistic that resolution will be found," he added.
Earlier in the speech, Malaysia's economic affairs minister Mohamed Azmin Bin Ali said that Malaysia is in the midst of preparing the mid-term review of the Eleventh Malaysia Plan, which is scheduled to be tabled in mid-October.
"Besides reviewing the achievements in the first two years of the plan, issues and development challenges will be identified and steps to tackle them will be proposed. Progressive socio-economic policies will be introduced to complement current institutional reforms," he said.
While the current macroeconomic indicators seem to exhibit strong performance on the back of robust gross domestic product (GDP) growth, stable and low inflation as well as full employment, he pointed out, the situation behind the headline indicators indicate a rather different situation.
He also said, outstanding structural challenges will also be addresses, such as raising labor productivity, ensuring quality investment and innovation, pushing industries to move up the value chain and expanding fiscal space.
"The initiatives are targeted to ensure a more sustainable and quality growth that benefits the people well beyond the year 2020," he emphasized.
He also highlighted that although Malaysia's economic growth might be affected by various reforms under the new government lately, he expects the impact to be short-lived.
"The trade-off is necessary to strengthen the fiscal position of the government and return the economy to a sturdier position and sustainable growth plan," he said.
Malaysia intends to maintain its budget deficit at 2.8 percent of GDP this year.