Our economy maintains strong growth amid criticism and sketchy forecast by some local and foreign analysts that Malaysia would share the fate of some European nations for 'over-speeding development plans'.
The economy posted strong growth in the first half of 2014, buoyed by private sector consumption and investment.
Higher prices for petroleum and other hydrocarbons have also aided export sand government revenue, but this trend also underscores the susceptibility of external and fiscal balances to commodity prices.
At the same time, contingent risks to the government have continued to build, in part represented by the persistent rise in government-guaranteed debt.
The government kicked off its fiscal reform program in 2013, prompting a revision of the outlook on the A3 sovereign rating to positive from stable last November.
Despite the drag on growth from fiscal consolidation, the Malaysian economy performed strongly in the first half of 2014 with real GDP growth averaging 6.3 per cent year-on-year over this period, higher than all other major countries in the Asia-Pacific other than China.
At least Prime Minister Najib Tun Razak's development program is moving on the right track, except for the 'almost nil impact' being felt by those in the rural areas. This needs a revision, especially during the next Budget presentation in October.
However, while we take pride in having achieved strong economic growth numbers in the last few quarters, the general sentiment among its people is still one of cynicism and indifference.
This is reflected in the stories making the rounds in recent weeks about how households in the country remain constrained by poor salary increments amid the rising cost of living. In general, the main grouse of the man on the street is that they are not feeling any better off than they were in the past few years or so even as the country’s gross domestic product (GDP) continues to expand healthily.
So, why is there a disconnect between the country’s strong GDP growth numbers and the reality on the ground?
World Bank senior economist for Malaysia Dr Frederico Gil Sander provides some perspective, noting that Malaysia’s “exceptional” GDP growth in the last two quarters had been driven mainly by strong export recovery, Sander points out that the spill-over effects had not been as strongly felt by many because of the limited linkages of the country’s export-oriented industries with the domestic sectors.
“Our research has found that Malaysia’s export-oriented sectors have fairly limited linkages with the domestic economy,” he says, pointing to the findings by World Bank’s latest Economic Monitor report on Malaysia published in June.
According to the report themed “Boosting Trade Competitiveness”, the contribution from domestic intermediaries to the value-added of Malaysia’s electrical and electronics exports is only 7%. This compared with that of South Korea, for instance, at 31%.
The World Bank’s report also indicates that multinationals in Malaysia source less than 40% of their inputs from domestic firms compared with 46% in Vietnam and 82% in China.
Undoubtedly, Malaysia has been one of the top-performing economies in Asean in recent years on the back of the country’s robust GDP growth numbers.
Growth has been particularly strong in the first half of 2014, with the country’s GDP expanding at higher-than-expected rates of 6.2% year-on-year and 6.4% in the first and second quarters of the year, driven by strong export growth and sustained domestic demand.
Sander points out that the improvement of advanced economies, in particular the United States and European Union, has finally trickled down to Malaysian exports.
However, he says, Malaysia will unlikely see spectacular growth rates in the quarters ahead. Sander argues: “There are some adjustments needed in the domestic side to rebuild the buffers against future crises."
“That means the monetary policy may need to become less accommodative and the fiscal policy may need to adjust for the Government to continue to reduce its fiscal deficit so that it can have the right fiscal position to face the next crisis when it comes,” he explains.
The normalisation process towards a less accommodative monetary policy, which involves higher interest rates, and a tighter fiscal policy, which involves the Government reducing subsidies, is expected to dampen domestic demand growth.
Still, Sander believes there is “really a good economic story to be told about Malaysia”.
The economy posted strong growth in the first half of 2014, buoyed by private sector consumption and investment.
Higher prices for petroleum and other hydrocarbons have also aided export sand government revenue, but this trend also underscores the susceptibility of external and fiscal balances to commodity prices.
At the same time, contingent risks to the government have continued to build, in part represented by the persistent rise in government-guaranteed debt.
The government kicked off its fiscal reform program in 2013, prompting a revision of the outlook on the A3 sovereign rating to positive from stable last November.
Despite the drag on growth from fiscal consolidation, the Malaysian economy performed strongly in the first half of 2014 with real GDP growth averaging 6.3 per cent year-on-year over this period, higher than all other major countries in the Asia-Pacific other than China.
At least Prime Minister Najib Tun Razak's development program is moving on the right track, except for the 'almost nil impact' being felt by those in the rural areas. This needs a revision, especially during the next Budget presentation in October.
However, while we take pride in having achieved strong economic growth numbers in the last few quarters, the general sentiment among its people is still one of cynicism and indifference.
This is reflected in the stories making the rounds in recent weeks about how households in the country remain constrained by poor salary increments amid the rising cost of living. In general, the main grouse of the man on the street is that they are not feeling any better off than they were in the past few years or so even as the country’s gross domestic product (GDP) continues to expand healthily.
So, why is there a disconnect between the country’s strong GDP growth numbers and the reality on the ground?
“Our research has found that Malaysia’s export-oriented sectors have fairly limited linkages with the domestic economy,” he says, pointing to the findings by World Bank’s latest Economic Monitor report on Malaysia published in June.
According to the report themed “Boosting Trade Competitiveness”, the contribution from domestic intermediaries to the value-added of Malaysia’s electrical and electronics exports is only 7%. This compared with that of South Korea, for instance, at 31%.
The World Bank’s report also indicates that multinationals in Malaysia source less than 40% of their inputs from domestic firms compared with 46% in Vietnam and 82% in China.
Undoubtedly, Malaysia has been one of the top-performing economies in Asean in recent years on the back of the country’s robust GDP growth numbers.
Growth has been particularly strong in the first half of 2014, with the country’s GDP expanding at higher-than-expected rates of 6.2% year-on-year and 6.4% in the first and second quarters of the year, driven by strong export growth and sustained domestic demand.
Sander points out that the improvement of advanced economies, in particular the United States and European Union, has finally trickled down to Malaysian exports.
However, he says, Malaysia will unlikely see spectacular growth rates in the quarters ahead. Sander argues: “There are some adjustments needed in the domestic side to rebuild the buffers against future crises."
“That means the monetary policy may need to become less accommodative and the fiscal policy may need to adjust for the Government to continue to reduce its fiscal deficit so that it can have the right fiscal position to face the next crisis when it comes,” he explains.
The normalisation process towards a less accommodative monetary policy, which involves higher interest rates, and a tighter fiscal policy, which involves the Government reducing subsidies, is expected to dampen domestic demand growth.
Still, Sander believes there is “really a good economic story to be told about Malaysia”.