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PIKOM: Malaysia economy on upward trajectory

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Malaysia’s economy performed better than expected in 2017, registering a much higher GDP growth in the first three quarters beating analysts’ forecasts and global institutions’ estimates.

Chart 1

Chart 1

Gross Domestic Product (GDP) rose 6.2% in the third quarter, after climbing 5.6 and 5.8% in the first and second quarters in 2017 respectively (see Chart 1). The much-improved GDP in the first nine months as compared with the corresponding quarters in 2016, was largely driven by private sector expenditure and a robust export growth.

When the full year GDP of 2017 is announced by Bank Negara Malaysia next month, it is anticipated that the growth rate can be in the range of 5.2 to 5.7%. In the recent PIKOM’s signature publication of the ICT Strategic Review 2017/2018, PIKOM revised its forecast from 5 to 5.3% for 2017.

Chart 2

Chart 2

Looking at the GDP growth for the past 10 years (see Chart 2), the Malaysian economy has been on the upside except for 2009 where it dipped to a negative 1.5%. We are confident that the Malaysian economy will continue to achieve this kind of growth as we approach the year 2020 and beyond albeit with a cautious optimism.

What are some of these potential impediments and cautions?

The impending 14th General Election could influence economic and social factors such as consumer sentiment, currency exchange and foreign direct investments. Investors may also stay on the sidelines whilst waiting for the political climate to settle after the elections.

The other economic factors that can have a direct impact on our economy include the inflation rate edging upwards, which is also linked to fuel price, lower-than-expected capital expenditure growth; lower domestic consumption, the receding performance and continuing soft landing of the Chinese economy and the global impact from the health of the economies of major trading partners, in particular the United States.

Given such a scenario, PIKOM is projecting a lower range of 4.8 to 5.0% growth in 2018 and from 4.5 to 4.8% for 2019.

ICT Industry Outlook

The ICT industry continued to boom in 2016, posting RM164.9bn in ICT-GDP, an increase of 8.5% over RM152.1bn in 2015. ICT Services contributed the biggest share at 40%, at about RM66bn, followed by ICT manufacturing at 36.1% at about RM59bn.

Chart 3

Chart 3

The biggest contributing component of ICT Services was Telecommunications which grew by just over 10% to RM47bn. Electronic components & boards, communication equipment, and consumer electronics contributed the most to the ICT manufacturing sector at 8.4% to RM54.8bn.

The e-commerce industry, comprising ICT and non-ICT producing sectors, also performed well, growing by 9.3% from 2015 to RM74.6bn in 2016. The e-commerce non-ICT industry was the bigger contributor, registering RM59bn, a growth of 9.4% from 2015.

In 2016, the ICT industry’s contribution (ICT-GDP and e-commerce of non-ICT industry) to the national economy was RM224bn, an 18.2% share.

PIKOM projects the ICT-GDP in 2017 to grow to RM177.7bn, based on the Average Annual Growth of the ICT-GDP from 2010 to 2016 of 7.74%. The e-commerce industry is also expected to grow significantly by 12.1% to RM83.6bn, with the e-commerce of non-ICT industry as the bigger contributor with a projected growth of 12.3% to RM66.3bn.

With the performance of the ICT industry in 2016, PIKOM is hopeful that the targeted 20% contribution of the industry to the economy by 2020 will be achieved much sooner than expected. This is based on the 20.1% average annual growth rate from 2010-2016. This growth rate is expected to yield RM244bn for the ICT industry’s contribution to the economy in 2017.

Future Outlook

PIKOM is confident that e-commerce will be the game changer in the ICT industry, especially with the birth of the Digital Free Trade Zone (DFTZ) aimed at empowering and encouraging SMEs to effectively adopt the online business model and culture.

With the government’s added push and incentives in IoT, Big Data, Fintech and IR 4.0, we can expect Malaysia to be a leading player in the region in driving transformation in the country especially in the public and private sectors and society.

However, the slow adoption of e-commerce among SMEs and the manufacturing sector; the low employment rate among the youth and fresh graduates and the regular incidences of cyber threats could disrupt the concerted efforts made by stakeholders to advance the ICT industry.

These issues need to be addressed consistently and effectively.

The above article is contributed by PIKOM, extracted from the Association’s signature annual report PIKOM ICT Strategic Review: Convergence of the Digital and Physical Worlds. It is the 9th annual series since 2009. For more information, visit www.pikom.org.my. The full article may be found at here.

 

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