MALAYSIAN GROWTH STORY
The 5.6 per cent gross domestic product (GDP) recorded from January to March should speak volumes about the state of the economy, which appears to be fundamentally strong and resilient amidst external uncertainties
THE first quarter data on the Malaysian economy this year caught many by surprise. This was, perhaps, due to the many false news circulating on social media about, among others, the economy failing, and that we are on the verge of bankruptcy.
Essentially, facts, figures, and economic logic will tell you the true picture and an accurate narrative about the economy. The 5.6 per cent gross domestic product (GDP) recorded from January to March should speak volumes about the state of the economy, which appears to be fundamentally strong and resilient amidst external uncertainties. More importantly, it is on the right track to becoming a high-income and developed nation in a few years.
The figure is way above the median expectation by economists and market analysts of 4.8 per cent, far beyond the rate of other regional countries, such as Thailand, Singapore, or Indonesia, and surpasses the forecast growth of the global economy, advanced, and emerging market economies for this year. It is also the best number of Malaysia’s economic growth for the past seven quarter performance since 2015.
Domestic demand is still at the driver’s seat of growth, where it has increased by 7.7 per cent, compared with the 3.2 per cent in the previous quarter, supported mainly by private sector activity and the up-tick in the public sector expenditure. Private investment performance has been remarkably robust, with 12.9 per cent growth from 4.9 per cent in the last quarter of 2016. With many medium- and long-term infrastructure projects in the pipeline, such as the second phase of the Mass Rapid Transit (MRT), the Light Rail Transit (LRT) link extension project, the East Coast Rail Line (ECRL), the high-speed rail (HSR), and the Pan-Borneo Highway, the growth rate is expected to be sustained in more years to come.
It is also important to note that the business sentiment in the analysed quarter has improved considerably, as seen from the Malaysian Institute of Economic Research’s (MIER) business conditions index, which now hovers above the 100-level in the first quarter, implying an improvement in business sentiment from January until March (2017).
Consumption activities are also seeing a fantastic figure, amidst concerns of the rise in cost of living. Private consumption expanded at a faster rate of 6.6 per cent from January to March relative to the previous growth of 6.1 per cent. Employment and wage growth are still the driving forces for household spending. With government efforts to continuously address the issue of cost of living, such as the increase in Bantuan Rakyat 1Malaysia (BR1M), a reduction in the Employees Provident Fund (EPF) contribution, the recommended rise in the minimum wage salary at RM1,500 a month, a proposed upward revision of salary at entry level, various 2017 budget measures to cap the spike in living costs, and more crucially, the recent major decision by the federal government to abolish the cabotage policy, which is expected to address the high living cost in Sabah and Sarawak, I would expect the subsequent quarter growth momentum to be further sustained.
On the supply side, instead of a slowdown, all sectors have expanded astonishingly in the first three months. This time around, the one sector worthy of attention is agriculture, which has strongly rebounded and recorded a solid up-tick of 8.3 per cent. In the same quarter last year, it contracted at 2.5 per cent. It was still at the negative territory in the last quarter of 2016 at 3.8 per cent.
As for manufacturing, with a strong rebound in export commodities and for electronics and electrical (E&E) products, this will be a stronger boost for the sector in years to come especially with the improvement in the external sector for this year and 2018. Malaysia’s international trade performance is also one of the key forces for the Malaysian growth story in the first quarter of this year. Gross exports have improved considerably by 21.4 per cent in the said quarter, compared with 2.8 per cent in the previous quarter, and in a negative territory of 2.3 per cent in the third quarter of 2016.
With Malaysia’s commitment to open trade and liberalisation, which some have misconstrued as selling Malaysia’s sovereignty, the way forward to 2020 and beyond seems bright. The bilateral commitments of boosting trade and Foreign Direct Investments (FDIs) with countries such as China, Saudi Arabia, India, and France, is expected to improve growth and development further, which eventually will create more jobs and improve income levels for all Malaysians.
This is further strengthened by Malaysia’s involvement in various multilateral platforms, such as the one belt and road initiative (OBOR), the Asean Economic Community (AEC), the Regional Comprehensive Economic Partnership (RCEP), and the on-going talks to revive the Trans-Pacific Partnership (TPP) agreement without the US, or TPP-11.
Perhaps, there are few concerns which need attention, moving forward, such as the spike in inflation and the depreciation of the ringgit. These are concerns which have merit, need to be attended to.
But, let us not be too overzealous in our analysis and blow things out of proportion. Indeed, all these issues are not without notice by the government and currently are under the purview and review of the government. On the ringgit, it seems clear now that measures taken by Bank Negara Malaysia last year to move away from the non-deliverable forward (NDF) offshore market has borne fruit.
Slowly but steadily, the value of the ringgit has strengthened and is moving towards its fair value. It has increased 5 per cent this year and now stands at 4.28 against the greenback.
With foreign portfolios coming in and improvements on the Malaysian economic outlook for this year, it is no surprise that some forex analysts have predicted the value of the ringgit could reach the level of RM3.80 per dollar by the end of this year.
As for inflation, although the headline inflation has increased of late, but the core inflation remains stable. Furthermore, the rise in inflation is temporary as the causes are more driven by the cost-push rather than demandpull factors.
All said, inflation for this year is expected to remain stable at around 3 per cent.
The bilateral commitments of boosting trade and Foreign Direct Investments (FDIs) with countries such as China, Saudi Arabia, India, and France, is expected to improve growth and development further, which eventually will create more jobs and improve income levels for all Malaysians.