Economist: Malaysia’s story must be told louder

HSBC Asean economist Yun Liu

KUALA LUMPUR: There is more optimism abroad about Malaysia and its growth prospects compared to within the country, according to a Hong Kong-based economist.

Yun Liu, however, said the RM1.8 trillion Malaysian economy needs more “marketing” internationally.

“You need to tell people that this is a great market to invest in. Make yourself louder.

“In the international media, Malaysia is not really often mentioned. It is a pity that Malaysia’s story is not told more.”

Liu is HSBC’s economist for Asean. She spoke with StarBiz recently during her investor marketing trip here.

Speaking as an “outsider”, Liu said Malaysia is in a good position for the long-term, especially if one takes into account the relocation of foreign direct investments into the country.

“Malaysia offers a well diversified portfolio, including in technology manufacturing and it gets investments from different countries especially from China,” said Liu.

She pointed out that Malaysia is a key beneficiary of China expanding its foreign investment presence in South-East Asia, including in areas like technology and solar panel manufacturing.

Elaborating on this, Liu noted that the country enjoyed a “relatively skilled” workforce with bilingual capabilities.

“You can do business with the West and also China.

“In terms of infrastructure, Malaysia is also in a good spot compared with some emerging countries including Vietnam, where many investors are concerned about the infrastructure capabilities.”

Despite the advantages enjoyed by Malaysia, Liu said there are many structural reforms that are needed in the country, one of which is education.

“You have to get the right education in the direction you want. If you want to have more engineers in a certain segment of industry, you need to push education in that front.”

Equally important is the retention of local talents, according to Liu.

The economist noted that the competition for talents is intensifying in Asean and this creates more urgency for Malaysia to retain its talents amid rising industry needs.

Brain drain is a long-standing issue in Malaysia and back in 2023, former Human Resources Minister V. Sivakumar said about 1.86 million Malaysians have migrated overseas as of 2022.

The majority of them or 1.13 million are residing in Singapore.

Commenting on the near-term priorities of the government, Liu said the focus must be on strengthening the revenue buffers, especially in the absence of the goods and services tax (GST).

The government must also push through the planned fuel subsidy rationalisation, she said.

Asked about her thoughts on the deferment of the luxury tax, Liu said she is unsure how much the tax would be able to “move the needle” in terms of revenue collection.

The high-value goods tax (HVGT) was supposed to have been implemented from May 1, but was deferred for more engagement with industry stakeholders.

During the tabling of Budget 2024 last October, Prime Minister Datuk Seri Anwar Ibrahim announced that the government would introduce the HVGT at the rate of between 5% and 10%.

Faced with consecutive budget deficits since 1998 and a total government debt of RM1.17 trillion, Malaysia desperately needs to expand its revenue base.

Anwar has previously said the government has limited room to invest in aspects of development for the people and provide sufficient assistance, considering the national tax revenue only stands at 11.8% to the gross domestic product (GDP).

Liu opined that the GST, if it is reintroduced, will provide a big bump to the federal government revenue.

“The GST might be a consideration for the government, but in terms of implementation, it might be difficult at this time considering the high inflationary environment.”

Meanwhile, Liu said that the savings from the planned subsidy rationalisation could be reprioritised to infrastructure developments.

She pointed out that the amount spent for subsidies in 2023 declined significantly compared with 2022, but has remained well above the pre-pandemic level.

“Fiscal consolidation is very much needed,” she added.

Looking ahead, Liu expects Malaysia as well as other Asean economies to see an acceleration in growth this year.

A key catalyst for the better forecast growth is the upturn in the trade cycle.

For now, Liu said the recovery is very much limited to the technology cycle, particularly within the artificial intelligence (AI) powered chips.

“If you look at South Korea, Singapore and Taiwan, in terms of industrial production, they have rebounded quite strongly in the past three or four months as they have direct exposure to the AI chips.

“Whereas Malaysia is lagging behind for now as it doesn’t have the direct exposure (to AI chips). Also, it is because Malaysia’s trade sector saw a delayed hit compared to everyone else (during the semiconductor sales downcycle).”

According to her, the delayed hit is due to the type of chips that Malaysia produces.

“The economies that are exposed to the higher value AI chips got hit earlier, and then Malaysia, which is more exposed to the lower margin segment of chip assembly, testing and packaging segment.

“So, as a result, Malaysia will see a rebound later, expected to be in the second half of 2024.

“We just have to wait for the trade cycle to turn and to broaden out,” she said.

Liu is also bullish on the prospects of Malaysia’s tourism this year, especially with the return of Chinese travellers.

The government’s decision to allow a 30-day visa-free entry for Chinese citizens has contributed significantly to the recovery in tourism.

In fact, Malaysia led the region in welcoming mainland Chinese tourists in 2023, with a recovery rate of 45% of 2019’s level.

“Direct flights from China to Malaysia are now 80% to pre-pandemic levels, but it is expected to continue rising.”

Recall that the government implemented the one-year visa-free entry for Chinese citizens up until Dec 31, 2024.

As the one-year visa waiver programme between Malaysia and China approaches its midpoint, there are growing calls from industry players for the initiative to be extended beyond December.

China has a reciprocal visa-waiver programme but it only allows Malaysians to stay in the republic for up to 15 days.

In her latest report, Liu said Malaysia started the first quarter of 2024 with encouraging signs of an economic recovery.

The first-quarter advanced GDP growth accelerated to 3.9% year-on-year, in line with market expectations.

While the recovery is still nascent, Liu said it signalled a positive picture of an economic rebound.

“We expect growth to recover to 4.5% in 2024, on the back of better trade prospects,” she added.

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