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LAST_UPDATESun, 22 Jul 2018 9pm

2018 A Good Year For Malaysian Economy

BACK in 2015, many had predicted that the Malaysian economy would dip into recession by 2018, or even earlier. Perhaps, this was based on historical data which suggests that the economy tends to plunge into a recession every seven to 10 years.

The last time the economy experienced a recession was in 2009, when gross domestic product (GDP) contracted to 1.5 per cent. There were other recessions prior to this, one in 1998, and another in 1985. The depth of the recession was more significant in 1998 when GDP took a dive to negative 7.4 per cent. In 1985, GDP contracted to 0.9 per cent.

Given this background, what is the prospect for the Malaysian economy next year?
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Clearly, there is no indication whatsoever that the economy is on the path of recession or crisis. On the contrary, there is evidence emerging that suggests the economy is on course to become a high-income nation by 2020.

The World Bank, based on simulations, predicted that we are on track to achieve the target. In fact, according to Malaysian Institute of Economic Research (MIER) analysis, Malaysia may even arrive at the high-income status as early as the first quarter of 2018.

The consensus forecast for Malaysian economic growth in 2018 is within the range of 5.5 to 5.8 per cent, with the prospect of stable inflation and low unemployment. There is evidence to suggest that the overall wellbeing of the people has improved steadily as incomes edged higher, especially for the bottom 40 (B40) group. Data shows that the education system is improving, number of jobs growing, income and regional inequalities are being reduced, and public transportation is becoming better over time. And, this trend is set to continue next year for reasons which I will elaborate.

For the first time since the great recession, the world economy is in a somewhat positive mood. It is projected to grow at more than 2.5 per cent next year. Interestingly, both developed and emerging economies are forecast to perform better next year.

The United States and the rest of Europe are expected to turn in an average growth rate of two per cent in 2018 while China, despite its slower than expected growth rate, is still a major force, with an economic trajectory of around 6.7 per cent next year. And without a doubt, the recently unveiled 2018 Budget, touted as the “mother of all budgets”, will further boost the Malaysian economy as we approach 2018, especially the people part.

The 14th General Election (GE-14) will be the central issue next year. While the government has a clear economic plan, a policy direction and a vision, the opposition has merely an incoherent economic wishlist: to abolish the Goods and Services Tax (GST), to have free education and to reduce the civil service. These are not economic plans, they represent an economic wishlist. Contrast it with the government’s Economic Transformation Programme (ETP), which is set to turn the country into a high-income, inclusive, and sustainable economy by 2020.

Instead of reverting to the past, the government is set for the future beyond 2020 with the Transformasi Nasional 2050 (TN50) vision. TN50 will prepare Malaysians, especially the youth, for future challenges such as the Fourth Industrial Revolution (Industry 4.0), an ageing society, the era of robots, climate change and the digital economy.

Indeed, with the launch of the Digital Free Trade Zone (DFTZ) this year, 60,000 high-income jobs are expected to be created primarily for the youth.

From the perspective of financial management of the country, the prospect for 2018 is promising.

Our international reserves now stand at US$102.2 billion (RM416.97 billion), which is sufficient to finance 7.5 months of retained imports and 1.1 times short-term external debt.

This compares starkly with 1998, when our reserves stood at a mere US$20 billion, sufficient to finance just 2.6 months of retained imports.

As for the prospect of the ringgit strengthening, we can see that the Malaysian currency is now performing well at RM4.08 against the US dollar compared with 1998 when it was at RM4.88.

Other indicators, such as the inflow of foreign direct investments (FDIs) and trade activities are also expected to improve. This is due to major investments in public transportation infrastructure and strong bilateral ties with important economies such as China, the US, Saudi Arabia, India, and Japan.

The 14 Malaysia-China business memoranda of understanding (MoU) and the 31 Malaysia-India business MoUs for instance, are expected to bring about RM302.4 billion worth of investments into Malaysia.

Multi-regional economic links such as the Regional Comprehensive Economic Partnership and the Comprehensive and Progressive Agreement for the Trans-Pacific Partnership are also set to take effect in 2018.

That said, 2018 will surely be another encouraging year for Malaysia. Have a great New Year.

The writer is a director of the Asian Research Institute of Banking and Finance, Universiti Utara Malaysia and Visiting Research Fellow in
Islamic Finance at OCIS, Oxford University

- NST