The implementation of new regional trade pacts would help Malaysia carry out key economic reforms needed to accelerate the country's transition to high-income status, a new report says.

Malaysia's GDP is projected to grow by 4.4% in 2016 and 4.5% in 2017, according to new economic analysis from the World Bank. The outlook reflects a gradual deceleration in private consumption in Malaysia due to softening in the labour market and continued adjustment to fiscal consolidation.

Private investment is also expected to slow down as commodity prices and global economic growth remain subdued, according to the World Bank's Malaysia Economic Monitor.

The report notes that key risks facing the Malaysian economy stem from commodity price instability and uncertainty over the growth trajectory in the global economy and its impact on Malaysia's exports.

It also focuses on the strategic relevance of trade agreements for Malaysia's successful development.

The country is engaged the Regional Cooperation Economic Partnership (RCEP), a proposed free trade agreement between the 10 member states of the Association of Southeast Asian Nations (ASEAN); the Trans-Pacific Partnership (TPP), the 12-country pact that includes Vietnam and the US; and the European Union Free Trade Agreement (EUFTA).

"The new generation of trade agreements can provide the needed impetus to boost Malaysia's economy to greater heights," says Dato' Sri Mustapa Mohamed, minister of international trade and industry. 

"The 11th Malaysia Plan emphasises competitiveness and productivity as important ingredients to raise the standard of living of Malaysians. These trade agreements can open up market access for goods and services, facilitate new types of foreign direct investment, encourage more competition, provide greater access to skills and technology, and create more and better jobs for Malaysian workers."

That said, Datuk Abdul Rahman Dahlan, economic minister in the prime minister's department, points out that workers' skills will need to be upgraded, and the labour force will need to move from the sectors with less potential for growth to sectors with more potential.  SMEs, which account for 97% of firms but 17.8% of exports, will not automatically gain. "With new trade agreements, Malaysia can accelerate reforms to support its transition to high income status," says Ulrich Zachau, World Bank country director for Malaysia.

"Malaysia has the potential to make great strides towards high income status, by boosting the productivity of SMEs, bolstering competition across sectors, liberalising services to further support exports, and attracting higher value-added foreign investment."

A recent report by the US International Trade Commission (USITC) suggested US imports of apparel from Malaysia would increase under the TPP agreement – although labour shortages may inhibit growth in production.

Malaysia is a smaller supplier of apparel to the US market, exporting products worth $546m in 2015. This compares with the $10.5bn in shipments from Vietnam, the second-largest apparel supplier to the US after China.

Labour may limit Malaysia TPP apparel shipments