JAKARTA - Malaysia is set to join the world’s advanced economies by 2021, according to a report of IHS Global Insight. The Second Digital Revolution related to the Internet of Things is powering Malaysian multinationals in various sectors from construction, air transport, healthcare, financial services and education, will continue to expand in other ASEAN economies, said Rajiv Biswas, Asia Pacific Chief Economist, IHS Global Insight.
Followings are the key points of the report:
Based on macroeconomic forecasts using its global economic model, IHS Global Insight projects that Malaysia’s GDP will increase from USD300 billion in 2016 to USD500 billion in 2021 and USD1 trillion by 2030.
- When its GDP exceeds the USD1 trillion threshold in 2030, Malaysia will be ASEAN’s second largest economy after Indonesia.
- Malaysia is set to join the ranks of the world’s advanced economies by 2021, as per capita GDP rises from USD9,900 in 2016 to USD15,200 by 2021 and USD30,000 by 2030.
- Over the next decade, Malaysian GDP is forecast to grow at an average annual rate of 5.0% per year.
- Malaysian manufacturing sector real sales are forecast to grow at an average annual rate of 4.9% over 2016-2025, with leading growth sectors being communications equipment (+6.9% per year), medical equipment (+5.7% per year), and electrical machinery (+5.6% per year).
- Malaysia’s rising star service sector industries over the next decade will include financial services, information technology, health care services, education, business process outsourcing, commercial aviation, MRO (maintenance, repair and overhaul) services and tourism.
- The regional footprint of Malaysian multinationals will continue to expand in other ASEAN economies as well as the rest of emerging Asia in a wide range of industries, including construction, air transportation, health care, financial services and education.
Growth Drivers for the Malaysian Economy
IHS Global Insight projects that Malaysia’s GDP will increase from USD300 billion in 2016 to USD500 billion in 2021 and USD1 trillion by 2030. Over the next decade, Malaysian GDP is forecast to grow at an average annual rate of 5.0% per year.
The structure of the Malaysian economy is forecast to undergo a significant transformation between 2016 and 2030, with the rapid growth of strategic high value-added industries in manufacturing and services. While Malaysia’s resources sector will continue to play an important role in the overall economy, with oil and gas, mining and agricultural commodities still being a core segment of the economy, the rising star industries will be advanced manufacturing and services. This sustained strong pace of economic expansion over the long-term outlook is expected to be underpinned by a number of factors.
Strong resources sector competitiveness: Malaysia’s oil and gas sector, together with mining and agricultural commodities, will remain an important anchor for the Malaysian economy and help to provide a diverse export base as well as raw materials for downstream processing industries such as petrochemicals and food processing.
Rising household incomes: With Malaysian household income levels rapidly approaching advanced economy standards, strong growth in middle class consumer spending on a wide range of goods and services such as consumer durables, housing, home furnishings, health care, financial services and education will continue to be an important growth engine.
Knowledge Economy: Rising investment by the Malaysian government and multinationals in advanced educational infrastructure will help to drive a shift towards a more innovation-driven knowledge economy, with R&D institutes, science parks and university research campuses that drive growth in higher value-added segments of a wide range of industries, such as health care and information technology. Malaysian government initiatives to boost investment inflows into the information technology sector achieved considerable success in 2015, with new investment by information technology companies which have MSC Malaysia status having reached MYR4.6 billion, while exports sales from MSC Malaysia status companies rose 18% year-on-year to reach MYR16.2 billion in 2015. This is making an important contribution to Malaysia’s goal of becoming an advanced economy by creating high value added, knowledge economy jobs.
Globally Competitive Hub for Foreign Direct Investment: Malaysia is ranked 18th out of 189 countries worldwide on the World Bank’s Ease of Doing Business Index for 2016, highlighting the attractiveness of Malaysia as an international hub for multinationals to establish their operations. Foreign direct investment (FDI) into Malaysia reached MYR 15 billion in Q1 2016, the highest quarterly level of FDI inflow since Q4 2012, and up 51% year-on-year. Total FDI into Malaysia in 2015 was MYR 43 billion, with foreign FDI into the Malaysian manufacturing sector accounting for around 50% of total FDI, led by investment inflows from the US and Japan, notably into the electrical and electronics manufacturing sector.
Leading Electrical and Electronics Export Hub: Malaysian exports of electrical and electronic products were buoyant in 2015, rising by 8.5% year-on-year, boosted by strong orders for integrated circuits and semiconductors, with ringgit depreciation during 2015 helping to boost Malaysia’s competitiveness. An important factor supporting Malaysian electronic exports in 2015 has been the Second Digital Revolution related to the Internet of Things, with strong growth in orders stemming from new applications related to the Internet of Things, for wireless communications and wearable devices.
Malaysia has a strong electrical and electronics manufacturing export sector, which accounted for MYR 278 billion or 35.6% of total Malaysian exports of goods in 2015. The strength of Malaysia’s electrical and electronics industry will make it a leading beneficiary of global electronics demand growth over the next decade related to the Second Digital Revolution and the Internet of Things. IHS Technology forecasts that the global market for industrial semiconductors will grow at 8% per year until 2019, reaching a USD 60 billion annual market size, with a wide range of applications including medical devices, aviation, LED lighting and factory automation. Global unit shipments of smart city devices, which are internet-connected devices used in smart city projects, are forecast to increase from 115.4 million in 2015 to 1.2 billion in 2025 according to IHS Technology forecasts. Global revenue from automotive display systems is forecast to grow at a compound annual growth rate of more than 11 percent to reach an annual market size of USD 18.6 billion by 2021, due to continued innovation in vehicle connectivity and safety technologies.
Malaysian Service Sector Average Annual Real Sales Growth, 2016-2025
Banking 5.3%
Education 6.0%
Health Care 5.5%
Hotels & Restaurants 5.8%
IT Services 7.0%
Source: IHS Global Insight World Industry Service
TPP and RCEP Will Boost Malaysia’s Export Competitiveness
As an export-driven, open economy, an important factor supporting the strong growth of Malaysian exports of resources, manufactures and services is the strong network of free trade agreements that Malaysia benefits from as a member of ASEAN, including the ASEAN Free Trade Area for duty free exports to other ASEAN countries, as well as the wide network of FTAs that ASEAN has in place with other APAC economies, including the China-ASEAN FTA, the ASEAN-India FTA, and the ASEAN-Australia-New Zealand FTA. Negotiations for the RCEP (Regional Comprehensive Economic Partnership) amongst ASEAN members plus 6 countries will also further expand the scope of trade and investment liberalization in the Asia-Pacific.
As one of the members of the Trans-Pacific Partnership, Malaysia is also poised to gain significant improvements in market access to North American markets once the TPP agreement is ratified and implemented. Malaysia does not currently have an FTA with North American countries, so will benefit from greater access to North American markets for its manufacturing exports due to reduction of tariff barriers. For Malaysia, the TPP countries are a crucial group of trade partners since they account for an estimated 41.8% of total Malaysian exports, according to IHS Global Trade Atlas data.
Overall, around 28% of total Malaysian exports to TPP countries is of electrical and electronic equipment, so the TPP deal has the potential to significantly improve Malaysian manufacturing sector market access to key TPP economies such as the US and Japan. Exports of electrical and electronic equipment such as electrical equipment, integrated circuits and semiconductors accounted for around 51% of total Malaysian exports to the US in 2015, highlighting the importance of manufactures in the existing structure of Malaysian exports to the US, which would make Malaysia a significant beneficiary of the TPP tariff reduction on manufactured goods.