The sterling performance of Q1 GDP has been largely established upon the strong showing in the export and agriculture sectors. The country’s exports grew by 24.1% y-o-y in March, breaching the RM80 billion threshold for the first time, while the plantation industry expanded by 8.3%, well above all other sectors.
One of the advantages of the national economy has been diversification. Even though crude oil prices may fall, we still have other sectors to bolster the economy. Fortunately, the external environment has shown signs of improvement while the weak local currency helps stimulate exports. As for the agriculture, improved weather from last year’s El Niño phenomenon has contributed to the sector’s strong growth.
As such, the 5.6% growth could be largely attributed to recovering external demands, not a rebound in the domestic market.
For instance, exports have also been strong for many other countries. In China, the sector grew 16.4% in March, Japan 12%, South Korea 13.7% and Singapore 16.5%. This proves that the Malaysian economy has benefited from stronger overall global prospects.
Firmer commodity prices, including those of palm oil and rubber, have also helped lift the first quarter GDP.
Owing to robust exports, the manufacturing industry needs to acquire more raw materials for production, and this has in turn stimulated private sector investment and prevented the domestic demands from sliding further.
If the momentum of the export sector could be sustained, employment prospects will brighten up.
Nevertheless, economists are concerned that after the quantitative easing policy is lifted, the asset bubble could burst while protectionism could hurt the frail economic recovery. In other words, downside risks for the global economy remain.
In addition, positive factors for the plantation industry are beginning to fade. Palm oil prices have retreated from their highs.
While major construction projects could boost private and public expenditures, consumer sentiment remains suppressed. And the mega projects will not last forever, either.
As such, reliance on external demands will not be the optimal solution to deliver the country out of the middle income trap. We need to address our internal problems before the national economy would take off.
Structural problems of Malaysia’s economy are no strangers to us: over-dependence on foreign workforce, lack of new growth engine, innovation and competitiveness.
The day-to-day living of ordinary citizens needs to be addressed. Against the backdrop of a 4.3% expansion in first quarter CPI, many simply do not feel the joy despite the impressive economic figures, thanks to skyrocketing goods prices. Meanwhile, negative interest rates have shrunk our bank deposits, further dampening our purchasing power.
Poverty is another issue. The government received a total of 8,277,391 applications for BR1M and has approved 5,153,238 of them. This shows that many Malaysians have indeed been excluded from the country’s economic prosperity.
DPM Ahmad Zahid Hamidi said after officiating a high-level committee meeting on urban poverty that the government would initiate a food assistance program, supplying frozen foods to the urban poor. What the impoverished urban families need more from the government is social safety net.
A family of ten from Sabah, for example, was evicted by the landlord for owing two months of rents, and has been overnighting for more than two weeks now under a flyover along the city’s MRR2.
What holds for the country’s economic future? Not Bandar Malaysia, TRX, KL 118 or other gigantic real estate projects. These projects will neither produce the multiplier effect nor be sustainable.
It looks like PM Najib has a passion for digital economy and has pinned his hopes on Alibaba’s Jack Ma to help set up the first digital free trade area outside China, to take the country’s economy off ground.
But, there are prerequisites that need to be met before we develop digital economy. Take China for instance, the country has built the world’s most extensive broadband network with a penetration rate of some 470 million households as of June 2016, covering all cities and towns and 95% of villages across the country.
China also boasts some of the world’s top IT and networking companies, while innovative technologies of big data, cloud computing and Internet of Things have been extensively employed in all core areas of the country’s manufacturing sector.
Like any other economic models, digital economy could only grow if we put in some real effort, not just big talks!
– Mysinchew
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