Press Release 2019

UOB Malaysia: Private sector spending will help anchor Malaysia’s economic growth in 2020


Kuala Lumpur, Malaysia, 05 December 2019 – United Overseas Bank (Malaysia) Bhd (UOB Malaysia) remains positive on the outlook for the Malaysian economy over the next six to 12 months, with expectations for Gross Domestic Product (GDP) growth to reach 4.4 per cent in 2020. This projection is 20 basis points lower than that estimated for 20191. Despite the Bank’s forecast for slower growth next year, it expects the domestic economy to perform better relative to other parts of the world2, demonstrating Malaysia’s resilience to external headwinds from rising US-China trade tensions and weakening global growth.

According to Ms Julia Goh, Senior Economist at UOB Malaysia, Malaysia’s growth will largely be supported by private sector spending, in particular private consumption. Other growth drivers include the country’s stable macroeconomic fundamentals and a higher number of approved investments into Malaysia being realised in 2020. These factors will help anchor economic growth in the year ahead and help cushion the economy against external headwinds.

“Malaysia’s steady private consumption levels, coupled with the economy’s underlying strengths, will provide support for its economic growth in 2020 and help mitigate against external pressures. These include escalating trade disputes between the US and China and the resulting slowdown in global manufacturing and trade. To date, private sector spending accounts for 77 per cent of Malaysia’s GDP and contributes 4.5 per cent to the country’s headline growth. However, the slowing global economy as well as lower foreign and public investments could weigh down on domestic growth. As such, we expect Malaysia’s economy to expand moderately at 4.4 per cent in 2020.”

Malaysia’s underlying strengths include its diversified economic structure, improved fiscal position, resilient institutions and significant natural resources. Meanwhile, ongoing policy reforms to stimulate growth through higher value-added labour, capital and technology will further support the domestic economy in 2020.

Given expectations for slower GDP growth, UOB Malaysia expects Bank Negara Malaysia to lower the Overnight Policy Rate (OPR) by 25 basis points to 2.75 per cent in the first quarter of 2020. This is in line with a wider trend by global central banks to move pre-emptively to mitigate downside risk to growth and to help offset the negative impact of US-China trade tensions.

“Emerging Asia, including Malaysia, has demonstrated its resilience amid rising external headwinds by lowering interest rates and initiating fiscal measures to ensure growth and stability. Bank Negara Malaysia cut the OPR by 25 basis points to 3.00 per cent in May and we expect a further 25 basis point-cut in the first quarter of 2020. This is to safeguard domestic growth amid lingering trade uncertainties and muted investments,” Ms Goh said.

A boost in government spending and investor confidence could be key catalyst to further growth
According to Ms Goh, there is room for Malaysia’s GDP growth to accelerate past 4.4 per cent if government spending recovers and investor confidence improves. One of the factors that will drive investor confidence and attract new investment flows into Malaysia is a positive review from the FTSE Russell World Government Bond Index (WGBI).

The FTSE Russell has kept Malaysian bonds on its WGBI watchlist since April 2019 with the next review due in March 2020. UOB Malaysia remains positive that the FTSE Russell will ultimately retain Malaysia in the WGBI but lower the country’s weightage in the index from 0.4 per cent to 0.3 per cent.

Greater government spending could also lend further impetus to growth in the year ahead. “While the Budget 2020 is an expansionary budget with RM3 billion worth of pre-emptive measures put in place to support the economy, uncertainty remains around the efficiency and effectiveness of public spending. To drive growth further, these measures need to enable private sector involvement, to revive business sentiment and to stimulate private investment,” Ms Goh said.


1 UOB Malaysia expects Malaysia’s 2019 GDP growth to come in at 4.6 per cent. Real GDP growth will be announced in the first quarter of 2020.

2 Other parts of the world here refer to advanced economies, non-Asia emerging markets and developing economies.