The Outlook for Malaysia - Where do we go from here?

1. THE OUTLOOK FOR MALAYSIA
Where do we go from here?
August 16, 2021
Dr William Thomas
Director, Southeast Asia
The Economist Corporate Network

2. For you to understand the global, regional, and domestic
issues affecting Malaysia’s near-term economic
recovery, and to be able to incorporate relevant
macroeconomic, geopolitical, and business trends into
your planning.
Our goal for today’s event

3. Global and regional trends affecting Malaysia
Questions and discussion
Domestic themes
Questions and discussion
Today’s agenda

4. Global and regional trends affecting Malaysia

5. 5
5
Road to recovery is long but getting shorter!
Factors that will affect recovery:
● Different levels of risk aversion, and
public / political tolerance for
uncertainty
● Timing of initial and subsequent
lockdown measures
● Fiscal space and commitment,
monetary policy flexibility
● Sectoral composition and
export market exposure
“Seeing through” the vaccine rollouts
Businesses are restarting investments and
hiring - but stay wary of anchoring bias and
remain flexible to changing scenarios
Most G20 countries get back to their Q4 2019 level of GDP this year or next
2023
2021
2022
We are here!
(Q3 2021)

6. 6
6
Mixed prospects for individual economies
Logistics strains and elevated freight costs
will impact profits
Remittances dropped sharply in 2020 and
are only recovering slowly
Electronics and healthcare demand remain
strong amid ongoing global chip shortage
Service- and tourism-focused countries
(such as Thailand and the Philippines)
remain vulnerable to a slow vaccine rollout
Positive forecast for region hides country-level idiosyncrasies
Many markets that faced GDP losses last
year will not recover until at least 2022

8. 8
8
Vaccination forecasts remain fluid
Getting the jab
At least 2022
for widespread
vaccination in most
markets
Outbreaks will
continue this year
Restrictions and
border controls will
continue
Little transparency on
decision-making
criteria for
governments
Mainland China

9. 9
9
Debt is up, but affordable...for now
Public debt rose
for most
governments
Low interest rates
helping to keep
debt serviceable
Austerity options –
increasing taxes
and reducing
spending – unlikely
until 2023 for most
countries

10. 10
10
Inflation spike from recovering demand in 2021, but we see this as temporary
Surge in inflation unlikely: enough spare capacity

11. 11
11
Countries pulling back from globalisation, embracing resilience
Supply chain shifts
Concerns about dependence
Economies susceptible to
uncontrollable influences
Emphasizing domestic markets
Tapping into the possibilities
RCEP
Are companies ready if it goes into
effect next year?
Data visibility
Shifting focus toward real-time data
for forecasts and agility

12. Chinese “super apps” are dominating the online retail space and are going global
Online commerce leads to new sales methods
Social commerce
Live streaming as a sales
channel (L’Oréal on Tmall)
Apps provide the platform to
engage with consumers directly
A revolution comparable to the
development of shopping malls
Dominant US tech firms and
retailers are still largely “siloed”
compared to China
Leading e-commerce firms in
SEA, India, and Latin America
follow the Chinese model, not the
West’s
Western firms are slow to respond to China’s digital leapfrogging

13. 13
13
Who wants to be the +1 ?
Expanding manufacturing
Vietnam
Increase in export-oriented
manufacturing will be
highly labour intensive.
Export-orientated
manufacturing and
logistics largely unaffected
by urban lockdowns.
Indonesia
Easing regulations to spur
foreign investment.
Improved infrastructure
and deeper supply-chain
integration will boost
manufacturing.
Thailand
Improving road, rail,
airport, and seaport
capabilities in EEC.
Focused on twelve
business areas,
such as biotech and
next-gen automotive.

14. 14
14
Internal political questions have external effects
One political crisis, plenty of uncertainty
Tension in Thailand
Protests restarted in
June after 8 months of
quiet, issues not resolved
Tragedy in Myanmar
Potential for refugee
crisis, spread of Covid
Economic future in
doubt
Singapore, Thailand,
and Malaysia among
the top investors
Electoral uncertainty
Malaysia: confidence vote?
Philippines and Indonesia:
positioning for the 2022 and
2024 races
Singapore: PM Lee for a bit
longer

15. Domestic themes

16. 16
16
Malaysia’s general outlook
2020: -5.6% 2021: 4.4%
• Vaccinations started in late February – forecast
to hit mass-vaccination point in mid-2022
• Exports of goods and services will achieve one
of the strongest growth rates in 2021
• In 2022-25, private consumption will remain the
primary driver of Malaysia's economic growth
• Inflation expected to average 2.4% in 2021,
before stabilizing around 2% through 2025
• EU and US palm oil import bans hit an industry
affecting 10% of population

17. 17
17
Uncertainty affects economic recovery
Political questions
• Suspension of parliament will delay the ratification of
recent trade deals, including RCEP and CPTPP
• Increase in executive powers allows the government
to focus on reviving the economy.
• The 12th Malaysia Plan has been delayed, but will
likely focus on reducing reliance on the oil and gas
sector, promoting domestic tourism, and
strengthening the social safety net
• Expect election within the next 12 months

18. 18
18
Recent inclusion in regional FTAs increases importance to Malaysia
China is enlarging its international presence
China is largest trade partner in Asia
Difficult to decouple from China given the
firmly established value chain
Deeper trade integration under RCEP
Provides China an advantage over non-
members outside of Asia
Critical partner for Malaysia
Largest source of Malaysian FDI, including
Belt and Road Initiative
Ongoing maritime disputes with Malaysia
South China Sea tensions remain a concern

19. 19
19
Deeper security ties and re-engagement
US relationship with Malaysia under Biden
US exclusion from RCEP and
CPTPP
Reinforces decline in US
economic influence – need for
stronger bilateral relationships
Lesser tariffs
Manufacturing and agriculture
benefit from fewer trade
restrictions with US
US-China trade tension effect
Malaysia’s electronics parts and
components industry will benefit
from ongoing US-China friction
~25% increase in US
merchandise trade

20. 20
20
Are businesses confident about the future?
Investment trends

21. 21
21
Regulations and government policies are reshaping markets
Changing the rules of the game
Sustainability goals
Environmental targets locally
and elsewhere are affecting
business models in Malaysia
ESG investing becoming
more mainstream
Regulatory structures
Rules on foreign ownership
are changing for some
industries (e.g., insurance)
Tech policy does not change
as rapidly as the technology
does

22. 22
22
Infrastructure, tech readiness are critical in attracting tech investments
Where will the next Asian tech hub be?
Tech adoption depends on
● Regulatory policies
● Supply & demand
● Cyber-security
Business-friendly, but
expensive
High wages and labour shortages
hampers growth for most
developed countries
Commercial launch of 5G
networks will propel government
investment and private sector
collaboration in smart city
initiatives

23. 23
23
A mix of policy and technology
The 5G race in Asia
Government financial support was
crucial in network expansion and
facilitating trials for industrial
applications in countries that have
rolled out 5G networks
Enterprise sector deemed more
lucrative for 5G than the consumer
market in the short term
• Thailand has started rolling out
5G to hospitals
• Vietnam working to bring rural
population online
• IIoT enhancing manufacturing in
Singapore
South Korea, Mainland China, Taiwan currently lead Asia 5G race
Mainland China

24. 24
24
Will everyone go back to work?
Unemployment falls, but not all the way
Unemployment
will linger
Malaysia
In some cases,
jobs have
disappeared
In others, jobs
have evolved and
the necessary
skills are hard to
find in the labour
pool

25. 25
25
Aging populations require workplace changes
Demographics and talent
Populations are shrinking, aging
Birth rates in Malaysia have been
declining for decades
No “quick fix” to the effect of birth
rates on workforce
Reevaluate how work gets done
Manage change through workforce
planning
Consider more automation and
autonomous processes in
manufacturing, oil & gas, services
Retain and broaden workforce
Upskilling and reskilling employees
Bringing new people into workforce

26. 26
26
Looking post-pandemic
Healthcare
• Consumer spending on health will grow, reflecting
the ageing of the population.
• mySalam insurance program, introduced in 2019,
could cover 80% of the population
• eBerkat to provide insurance to micro-, small-, and
medium-sized enterprises
• Government supports a plan to have electronic
medical records nationwide by 2023
• Siemens Healthineers and HMI Group in 5-year
partnership to roll out digital technologies
supporting non-communicable disease treatment

27. Malaysian household income growth limited

28. Modest private consumption growth in Malaysia

29. Other key SEA markets
Singapore
• 2020: -5.8% 2021: 5.4%
• Plan to move beyond “zero-Covid”
strategy once 75% are vaccinated
Indonesia
• 2020: -2.2% 2021: 3.3%
• Progress toward improved infrastructure
Thailand
• 2020: -6.1% 2021: 3.6%
• Plans to reopen to tourism in October,
but 2022-23 more likely
Vietnam
• 2020: 2.9% 2021: 5.4%
• Increase in export-oriented
manufacturing will be highly labour
intensive

30. THE OUTLOOK FOR MALAYSIA
Where do we go from here?
August 16, 2021
Dr William Thomas
Director, Southeast Asia
The Economist Corporate Network Join me on LinkedIn: