Can domestic demand mitigate slowing global demand for Malaysia?

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Domestic Demand Expected to Mitigate Impact of Slowing Global Demand on Malaysia's Economy

Domestic demand is anticipated to provide a significant counterbalance to the effects of weakening global demand on Malaysia's economy. This resilience is projected to stem from more expansionary fiscal spending, an improvement in private investment, and sustained private consumption. While global economic headwinds, largely driven by the prolonged US-China trade dispute, are expected to moderate overall economic growth to 4.3 per cent in 2020 from an estimated 4.5 per cent in 2019, domestic factors are seen as crucial in supporting economic activity.
Expansionary Fiscal Spending and Investment to Drive Domestic Demand

The Malaysian government is likely to adopt a more expansionary fiscal stance in Budget 2020, signalling a strategy to bolster domestic economic activity. This approach is expected to lead to a fiscal deficit of approximately 3.20 per cent of gross domestic product (GDP), deviating from the medium-term target of 3.00 per cent. Alongside increased government spending, private investment is also forecast to improve, further contributing to the strength of domestic demand and providing a buffer against the anticipated slowdown in exports.
Trade and Investment Diversion Benefiting Malaysia

Signs of trade diversion have already begun to manifest, with Malaysia experiencing a surge in exports to the United States. During April to July 2019, exports to the US saw a year-on-year increase of 9.2 per cent, a notable improvement from the -1.0 per cent recorded in the first quarter of 2019. Furthermore, exports to China showed a rebound in July, growing by 3.8 per cent year-on-year after a decline in the preceding three months. Analysis by Bank Negara Malaysia indicates that Malaysia has successfully captured a larger share of imports from both the US and China for specific product categories, including photosensitive semiconductor devices, diode-transistors, and petrochemical products.
Foreign Investment Shows Significant Growth

Malaysia has also reaped benefits from investment diversion, with approved foreign investment experiencing a substantial increase. In the first half of 2019, approved foreign investment surged by 97.2 per cent to RM49.5 billion, up from RM25.1 billion in the same period of the previous year. Both the US and China have been significant contributors to this inflow, with the US accounting for RM11.7 billion and China for RM4.4 billion in foreign investment during this period. This influx of foreign capital is expected to contribute to domestic economic stability and growth.

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Can domestic demand mitigate slowing global demand for Malaysia?

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