KUALA LUMPUR, July 19 (Xinhua) -- The Asian Development Bank (ADB) said Thursday that it is maintaining its gross domestic product (GDP) growth forecasts for Malaysia at 5.3 percent for 2018 and at 5 percent for 2019.
In a supplement to its Asian Development Outlook (ADO) 2018 report, the bank said the policy changes effected by Malaysian new government elected in May, which include increasing the minimum wage, effectively suspending the goods and services tax effective from June 1, and stabilizing fuel prices by reintroducing some subsidies, are expected to spur consumer spending toward the end of the year.
Meanwhile, discussions to cancel big government investment projects could reduce investment spending originally slated for 2019.
"On balance, the ADO 2018 growth outlook is maintained at 5.3 percent for 2018 and 5 percent for 2019," it said.
The Malaysian economy took a breather in the first quarter as GDP growth softened to 5.4 percent from 5.6 percent in 2017. According to the ADB, although the stable labor market and higher wages buoyed private consumption, lower government spending eased public consumption.
As expected, growth in exports lost some steam, reflecting slower external demand, as did growth in imports. the ADB expects the country's exports continue to moderate this year.
Meanwhile, the ADB maintained its inflation projection for Malaysia at 1.8 percent next year, but revised down its inflation forecast this year to 2.5 percent.
"Fuel subsidies in effect since June are expected to further contain inflation, prompting this supplement to revise down the forecast for 2018 from 2.6 percent to 2.5 percent," said the bank.
Malaysia's inflation slowed to 1.7 percent in the first five months of 2018 from 4.1 percent a year earlier, largely thanks to lower transmission of global fuel price changes to domestic prices. Prices for transportation, which comprises 13.7 percent of the consumer price index basket, rose at only a tenth of the pace last year.
The report also noted that the global oil prices above expectations and higher U.S. interest rates have contributed to rising inflationary pressures in some sub-regional economies, including Malaysia, and prompted these countries to raise rates in the first half.
Malaysia raised its policy rate by 25 basis points to 3.25 percent in January, but in its recent monetary meeting maintained the rate.