Is Malaysia’ GDP Growth on a Downtrend?

At the moment, Malaysia has a “very low” share of high-skilled jobs compared to Singapore and other advanced economies, according to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie (Starbiz, Wednesday, 5 Nov 2021).

The share of high-skilled jobs for Malaysia is only 24.7% while 62% are semi-skilled and 13.1% are low skilled. This is as of second quarter of 2021. Other countries have high-skilled job percentages of over (or close to) 60% mark. Singapore has about 54.7%, Switzerland 51.3% and the United States 42.2%. That’s according to SERC.

Lee warned that Malaysia’s potential economic output growth has hit a speed bump, with the rate moderating to 3.3% in 2020 and perhaps 3.4% for 2021. In comparison, the average potential output growth rate between 2011 and 2019 was 4.9%.

Potential output is the maximum amount of goods and services an economy can turn out when it is most efficient – that is, at full capacity.

Apart from the lack of skilled jobs domestically, slowing labour productivity growth is another factor.

Labour productivity in Malaysia has only grown by 1.1% between 2016 and 2020, as a result of lower utilisation of productive capital stock and ineffective mobilisation of resources.

High-quality investments in technology-intensive industries are required to increase our productive capital stock. We also need to encourage more companies to adopt technology and digitalisation, especially among the SMEs.

On the economic performance for 2022, Lee expects a stronger growth for Malaysia compared to last year, although his projection is below the government’s official guidance.

The country’s GDP is set to grow by 5.2% in 2022, from MOF’s projected growth of 5.5%-6.5%.  Malaysia’s recovery path is contingent on sustained revival in domestic demand, uninterrupted transition towards reopening, no major drag from exports and timely implementation of fiscal measures.

Lee highlighted that the Malaysian economy faces five major risks in 2022 – the Covid-19 mutations, the US Federal Reserve policy headwinds, China’s economic slowdown, price pressure and the winding down of domestic relief measures and policy changes headwinds. Others not mentioned may include political stability, flip-flop Government policies and the incentives for FDIs.

For 2022, the real issue is inflation – projected officially at 3%. But prices of essentials are already above 10%. This is mainly a cost-push phenomenon with consumers bearing the brunt of supply disruptions, price increase of commodities and imported goods, transportation cost increases and tariffs. To mitigate, the Government needs to raise minimum/living wages, improve bottlenecks, reduce bureaucracy, subsidise/control tariffs and transport costs. Beyond that, we need to re-look at up-skilling workers, focussing on R&D and taking steps on productivity improvements, to reverse the downward growth pattern of GDP.

Will the present Government do that?

Reference:

In need of more high-skilled jobs, Ganeshwaran Kana, The Star, 5 Jan 2022