Malaysian economy supported by strong fundamentals, says Lim

Finance Minister Lim Guan Eng

KUALA LUMPUR: The Malaysian economy remains fundamentally strong and resilient despite recent global events that pose downside risks to global economic growth, said Finance Minister Lim Guan Eng.

In a statement on Monday, he said emerging markets, including Malaysia, have been especially exposed to these risks.

However, Lim highlighted that the FTSE Bursa Malaysia Kuala Lumpur Composite Index and the local currency have remained among the best performing in the region, while other factors point towards the strength in Malaysia's economy.

"Despite all these headwinds, let us not forget that the Malaysian economy is fundamentally strong and resilient. Our strengths can be seen from eight factors," he said.

First on the list of factors cited by Lim was the steady growth of Malaysian economy, driven by domestic and external demand. 

"With growth in 2018 expected to be around 5%, Malaysia will still be one of the fastest growing economies in the region."

Malaysia also benefits from a diversified economy with services accounting for 54.5% of gross domestic product while manufacturing accounts for more than 80% of the country's total exports.

The unemployment rate in Malaysia is low, registering 3.4% in July while private sector wages grew 6.2% in the first half of 2018.

The current account surplus stood at 2.8% of gross national income in the first half of the year and is expected to remain in surplus moving forward. 

"Even more positively, the goods surplus will continue to be supported by a highly competitive and diversified export sector," said Lim. 

The flexibility of the ringgit can also function as a "shock absorber" in times of stress, said Lim, as it has evolved into being a fully flexible or floating currency since the Asian Financial Crisis.

"Nevertheless, it is highly important for businesses to recognise that exchange rate adjustments are unavoidable and are ready to manage their currency exposures prudently. 

"In the medium-term, as the Government continues to improve our economic fundamentals, the ringgit will eventually reflect these positive developments."

The country has an international reserve position of US$104.4bil, which is adequate to facilitate international transaction but represents only a quarter of Malaysia's total external assets.

"Banks and corporations hold three-quarters of Malaysia’s external assets (as at end-2Q 2018: RM1.3 trillion), which can also be drawn upon to meet their external debt obligations (RM740.9 billion), without creating a claim on international reserves. 

"Our financial institutions also remain well-capitalised with sufficient liquidity to support intermediation within the economy," said Lim.

Furthermore, the low inflation rate of 0.8% in June and 1.1% in July will shield Malaysia from any imported inflation caused by the ringgit's decline against the US dollar.

With regards to the US-China trade conflict, Lim said it was a unique investment opportunity for the country as many companies from the two nations, especially large manufacturers,are seeking to site their facilities in Malaysia.

Lim said Malaysians' level of education, quality of hard and soft infrastructure as well as fluency in both English and Chinese presents an advantage over neighbouring countries such as Thailand, Vietnam and Indonesia.

"At the same time, we remain significantly cheaper investment destination than countries such as Singapore, and naturally Hong Kong."

 There has been a positive outlook on the prospects of the economy since the General Election, according to Lim.

"According to the Malaysian Institute of Economic Research (MIER), the consumer sentiment index breached the 100-point optimism threshold to a 21-year high of 132.9 in July 2018, which suggests that consumer spending in the next few months will remain strong. 

"Similarly, the MIER business conditions index also registered 116.3 points in July 2018, its highest level since 2015," he said.