Question 5 (Mar/Apr 2018/19)

Malaysian Economic Growth Beats Forecasts

Malaysia's economic growth in the fourth quarter of 2018 (4Q18) has surpassed expectations, as the

country's gross domestic product (GDP) grew 4.7% year-on-year (y-o-y). This marks the economy's first

acceleration in growth over the last one year, following the continued slowdown in GDP growth after 3Q17

where it registered a 6.2% growth. In 4Q17, it grew by 5.9%.

An earlier Bloomberg survey had predicted a median GDP growth of 4.5% in 4Q18, marginally higher than

the 4.4% growth registered in 3Q18. Speaking to the media during the 4Q18 GDP results briefing, Bank

Negara governor Datuk Nor Shamsiah Mohd Yunus said that resilient private consumption and the

improvement in the commodity-related sectors had supported the growth in 4Q18, amid temporary supply

disruptions. "On the demand side, growth continued to be anchored by the private sector. Meanwhile, on the

supply side, the services and manufacturing sectors remained the key drivers of growth," she said.

The services sector grew 6.9% in 4Q18 (3Q18: 7.2%), while the manufacturing, mining and quarrying, as

well as the construction sectors expanded by 4.7% (3Q18: 5%), 0.5% (3Q18: -4.6%) and 2.6% (3Q18:

4.6%), respectively. However, the agriculture sector continued to be a drag on the economy, contracting by

0.4% (3Q18: -1.4%). Private consumption grew 8.5% in 4Q18 and private investment was up 4.4%.

Meanwhile, public-sector consumption in the fourth quarter rose 4%. However, public-sector investment

continued to decline for the fourth consecutive quarter by 4.9%.

For full-year 2018, the Malaysian economy grew 4.7% on-year, with a GDP value of RM1.23 trillion at

constant prices and RM1.43 trillion at current prices. While the central bank has described the growth as

"commendable", given the existing macroeconomic conditions, it was notably lower than the 5.9% growth in

2017. It was also marginally lower than the government's earlier target of 4.8%. However, the GDP growth

was in line with a Bloomberg survey of 4.7%. "In 2018, the country saw a moderation in growth after an

exceptionally strong performance in 2017. The economy was impacted by one-off factors, namely, supply-

side shocks and post-election policy uncertainty," stated Nor Shamsiah. She also added that the disruption in

the commodity-related sectors in 2Q18 and 3Q18 as well as the government's spending rationalisation have

caused more downward pressure on the economy. All sectors, apart from services, have seen a slowdown or

contraction in 2018 when compared on a y-o-y basis. In 2018, the services sector recorded a 6.8% growth in

real GDP, following a 6.2% growth in the previous year. The manufacturing and construction sectors grew

5% and 4.2% in the year in review, lower than 6% and 6.7%, respectively. The mining and quarrying sector

saw a contraction of 1.5% in 2018 as compared to a marginal 1% growth in 2017. Meanwhile, the agriculture

sector took a sharp plunge in 2018, dropping by 0.4% from a growth of 7.2% in 2017.

For the year 2018, the current account surplus reached RM33.5 billion, contributed by a higher surplus in the

goods account at RM121.4 billion and lower deficit in the services account at RM19.7 billion. Nor Shamsiah

said Malaysia's macroeconomic fundamentals continued to remain strong despite domestic and external

headwinds. "In 2019, the Malaysian economy is likely to remain on a steady growth path, supported by

resilience of private consumption and the continuation of civil engineering projects apart from the recovery

from supply side shocks," she said.

Source: Adapted and modified from theStar Online 15 February 2019, 'Malaysia Economic Growth Beats

Forecasts', viewed on 17 February 2019,

news/2019/02/15/growth-beats-forecasts>.

Required:

(a) Based on the case study above,

(i) Identify any TWO (2) factors that contributed to Malaysia's economic growth. (2 marks)

(ii) State any THREE (3) sectors that expanded during the third quarter of 2018. (3 marks)

(b) Explain any THREE (3) factors that increase an economy's aggregate demand. (9 marks)

(c) Explain the type of fiscal policy that the government can implement to improve the economy's GDP

growth. (6 marks)