Juwai IQI global chief economist Shan Saeed
PETALING JAYA: The latest Goldman Sachs Group report listing Malaysia as the 25th largest economy in the world by 2040 will not only put the nation on the radar of investors but is a testament that the government’s economic policies are in the right direction, according to economists.
However, they pointed out that timely execution is key to achieve the intended economic targets, adding that the right initiatives and reforms are also needed to ensure Malaysia’s economy would further improve.
UCSI University Malaysia associate professor of finance Liew Chee Yoong told StarBiz the Goldman Sachs report reflects optimism about Malaysia’s long-term growth potential.
“To realise this potential and address competition from neighbouring countries, Malaysia needs to strengthen its economic policies, focusing on innovation, enhancing workforce skills and improving infrastructure.
“Policies promoting sustainable development and digital economy will also be significant,” said Liew, who is also a research fellow at the Centre for Market Education (CME) .
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said it really boils down to the strong resolve for economic reforms.
Typically, he said reforms would be a painful exercise as its involves the reorganisation and restructuring of the existing resources.
This may include how subsidies can be dished out, shifting the pension systems from defined benefits to defined contribution and the need to increase the amount of tax collected.
“At the end of the day, how we could promote a private sector-led growth and government would be an effective enabler to a competitive economy, one that is fair and transparent.
“So, it’s a marathon as it will require a long gestation period and we could only see the outcome in several years ahead. For instance, the outcome from investing in education and human capital can only be seen in the next decade perhaps.
“Therefore, the tenacity to execute reforms will be closely monitored by investors,“ Afzanizam noted.
One of the government’s economic policies which economists opined would spur the local economy to a higher level going forward is the 12th Malaysia Plan (2021 to 2025).
The subsequent ones upon completion of the current plan are the National Energy Transition Roadmap (NETR), New Industrial Master Plan 2030 (NIMP 2030) and the development of high-growth high-value industries.
Meanwhile, Juwai IQI global chief economist Shan Saeed said that it’s all about demographics and domestic market.
He said Malaysia has performed well due to its macroeconomic stability, productive labour force and above all its strategic geography.
“Malaysia needs to maintain growth stability to buttress macroeconomic stability of the country. We at Juwai IQI remains positive about the country’s economic outlook for 2024 and beyond.
“The government can deliver economic outcomes based on solid policy consistency and macroeconomic stability,” Shan said.
OCBC Bank senior Asean economist Lavanya Venkateswaran said the government has embarked on the right direction by elucidating medium-term goals.
Timely implementation of the policies and measures in pursuit of the goals would be crucial to achieving the intended targets, she said, noting that these would in turn bolster Malaysia’s competitiveness and attractiveness.
Taking a different view, CME chief executive officer Carmelo Ferlito said: “Malaysia’s market is saturated under many perspectives.
“With a small domestic economy and the regulatory framework worsening, investors look at countries which look more committed to the market economy or at least that offer a bigger domestic market.
“Malaysia can build its success only as a regional hub, but in order to do so cannot keep interfering in the economy with price controls or restrictive labour regulations.”
Centre for Market Education (CME) CEO Carmelo Ferlito
Goldman Sachs Group in its report this month has placed Malaysia as the 25th largest economy globally with an estimated gross domestic product (GDP) of US$1.2 trillion (and with a population of 39 million), behind Thailand (ranked 24th), the Philippines (23) and Indonesia (7th place).
It added that the top five leading global economies by 2040 would be China, followed by the United States, India, Germany and Japan. It projects China’s real GDP to be at US$34.1 trillion, with a population of about 1.4 trillion.
The global investment banking group said the world economy seems to be in the recovery stage, with global growth expected to remain steady at 3.1% in 2024 and 3.2% in 2025.
“Population growth is weakening, climate change and increasing geopolitical risks, among other factors, will impact the global economy.
“However, the emerging economies and major economies in Asia are directed to keep catching up to richer countries,” the report noted.
Based on the earlier International Monetary Fund’s (IMF) GDP forecast for 2030, it noted that 16 Asian countries would be among the leading economies.
China, India, Indonesia and Japan would be among the top six economies by 2050 along with the United States and Germany, it said.
It ranked Malaysia as the 29th largest economy in the world by 2030, with a forecast GDP of US$1.8 trillion.
In terms of Malaysia’s economic performance with respect to fiscal and monetary policies as well as policy framework against its regional Asean peers, OCBC’s Venkateswaran said the country has done well, similar to regional peers.
The introduction of medium-term policies such as NIMP 2030, NETR and the mid-term review of the 12th Malaysia Plan affirm the government’s commitment to fiscal consolidation and broader reforms.
It is crucial that the government follows through on these plans to provide confidence around the reform process and “crowd in’ private investments.
“Monetary policy has been a steady pair of hands and we expect this will be the case in 2024. We expect Bank Negara to keep its policy rate unchanged at 3% this year,” she said.
UCSI University Malaysia associate professor of finance Liew Chee Yoong
UCSI’s Liew said that in Asean, Malaysia’s economic performance is strong, especially in its fiscal and monetary policies.
Its policy framework is robust, with a focus on economic diversification, innovation and sustainability, he said.
However, he said challenges remain in areas like labour market flexibility as well as reducing dependence on certain commodities such as crude palm oil and crude oil as exports.
On Malaysia’s performance on the foreign direct investment (FDI), exports and tourism fronts compared with other Asean nations, Juwai’s Shan felt the Investment, Trade and Industry Ministry and Malaysian Investment Development Authority have done a good job in maintaining momentum in the economy, as exports, trade and commerce are still increasing.
Malaysia has a lot of potential in tourism, he said, adding that global tourists feel safe and secure in the country with great hospitality of the locals.
He said Malaysia needs to move aggressively to tap the global tourism market, which is a new economic tool for GDP growth.
Ferlito said FDI, exports and tourism are important elements for the economy but feels Malaysia should push more in promoting domestic entrepreneurship and rebuilding a manufacturing base while manufacturing remains stagnant in the country.
