Malaysia - The next five years

The Eleventh Malaysia Plan is the final phase of the government’s 5-year plan to bring the nation towards high-income status by 2020. The Plan envisions an economy that would grow within 5-6% per year within 2016- 2020 with inflation expected to remain below 3%. It is also affirming the government’s goal of bringing the fiscal deficit to a balanced budget by 2020. Moreover, it is placing greater emphasis on spurring productivity and innovation so that economic growth trickles into people’s wellbeing.

We think an improvement in external demand and recovery in commodity prices would allow the economy to grow about 5% going forward. But given this environment where global trade and commodity prices could remain subdued and low interest rates are bound to normalize, there is a need for the Malaysian government to embark on reforms to build economic resilience and meet the targets set forth under the Eleventh Plan.

The current rate of MYR depreciation and projected slowdown in economic activity this year, for instance, could reverse the uptrend in incomes seen in previous years. And while growth could find support from a firmer recovery in external demand and commodity prices, the economy faces risks of a slowdown in domestic demand from a maturing debt cycle, as already unraveling in Singapore and South Korea.

In this report, we examine four strategies identified in the Plan which are expected to strengthen the country’s macroeconomic fundamentals and facilitate sustainable growth

These are 
(1) boosting productivity, 

(2) promoting investment, 

(3) increasing exports, and 

(4) consolidating the fiscal position to enhance fiscal buffers.

In our view, the government is on the right track to pursue these strategies. But a firm commitment to the delivery of these reforms remains to be seen. (Read Report)

Source : Deutsche Bank Markets Research