JOHOR BAHRU, 1st July – Recent development has shown that the Malaysian economy grew by 4.7% in 2013 after suffering a contraction in 2012 up to the first half of 2013.
The current account improved with a broad based recovery in exports including the electrical and electronics sector as this was supported by recovery in export growth in the second half of 2013, which offset declining domestic demand due to government fiscal and credit tightening measures.
The World Bank Senior Economist for Malaysia, Dr Frederico Gil Sander in his talk on economic growth of this country, held at UTM, said that investment remained high and more jobs were created with a rising employment to working age population.
“Growth in early 2014 slowed, but the outlook for 2014 and 2015 remain favorable as economic conditions in advanced economies improve.”
“The World Bank expects a 5.4% growth for 2014. However, it also warns of slowing domestic demand due to subsidy cuts, tax hikes, Goods & Services (GST) taxation scheme that comes into force on 1st April 2015 and public salary restraint as the government continues fiscal consolidation,” he said.
Interest rates are expected to rise as global monetary conditions normalize. Bank Negara announced a 25 basis point rise in the OPR from 3.00% to 3.25% on 10th July 2014 (the first since May 2011) in an effort to address growing financial imbalances.
On an optimistic note, with more than 60% of Gross Domestic Product (GDP) consumed abroad, it is expected that the effects of improving external conditions will outweigh slower domestic demand.
“However, the economy faces considerable risks. The high share of our debts held in foreign hands makes us highly vulnerable to volatility in foreign capital markets.”
“But the ability to boost exports in an improving external environment is crucial for sustained growth of the Malaysian economy,” he said.
In analyzing the structural trend in trade competitiveness, Dr. Gil Sander said the World Bank has found that Malaysian exports have included a high portion of domestic value added, which mitigated the impact of the decline in the share of exports in GDP.
The decline in exports has been concentrated in the electrical and electronics products (our core export product) but this has not been compensated by the expansion of exports of commodities and commodity-related manufactures such as petrochemicals.
Malaysia also lags in the export of services which have great growth potential. Export growth are hindered by ‘behind the border restrictions’ which not only reduce the incentive for exporting but also limit the linkage between domestic industries and export oriented industries.
“These are issues that need to be resolved to grow and sustain Malaysian exports. Malaysia need to be engaged in higher value activities in the global value chain, the issue of skills gap must be addressed.”
“The World Bank sees Malaysia’s upcoming chairmanship in ASEAN opening up avenues to boost Malaysia’s trade competitiveness,” he said.
Dr. Gil Sander also further added that Malaysia could meet short-term skills gap through mutual recognition agreement of professional services, and lead the initiative to streamline non-tariff measures (e.g. licensing requirements) that affect firms potentially linked to global value chains.
The talk by Dr. Gil Sander was organized by the Faculty of Management, which was held at the Banquet Hall of the Chancellery Building at the Johor Bahru main campus.
