Bright spots anticipated by research houses in 2020 Malaysian economy

Source: Xinhua | 2019-12-30

When the fireworks at New Year's Eve are over, few will remember 2019 as a wonderful year for the global economy. Rising world protectionism has rattled the global supply chain and affected most regional economies. Malaysia, as an open economy has not been spared from the volatility.

However, underpinned by strong fundamentals included solid domestic demand, Malaysia managed to achieve a decent gross domestic product (GDP) growth of 4.6 percent for the first three quarters of 2019.

While the trade uncertainty is likely to prevail in 2020, analysts are anticipating Malaysian economy to stay resilient by achieving a moderate growth of 4.4 percent to 4.5 percent.

Crude palm oil (CPO) price recovery, improved foreign direct investment (FDI), regional trade deal boost, government's tourism initiative, government-linked company (GLC) reform might offer bright spots to the Southeast Asia third largest economy.

CPO PRICE RECOVERY

Driven by tight supply and improved demand, CPO prices have risen 44 percent to about 2,906 ringgit (703 U.S. dollars) as of Dec. 26 per ton. The palm prices, if sustained, will boost Malaysian government coffers.

Hong Leong Investment Bank Research said in its recent report, the positive CPO price sentiment would be sustained into 2020, underpinned by looming palm production deficit arising from drought and cutback in fertilisers, lower soybean planted acreage in the United States and higher biodiesel mandate in the world's two largest palm oil producers Indonesia and Malaysia.

Besides, improved Chinese palm oil demand will continue to support the sector. Malaysia's palm oil exports to China surged 40 percent year-on-year to 2.23 million tons from January to November 2019.

The research house which projected an average CPO price of 2,100 ringgit per ton in 2019, is anticipating a higher CPO price of 2,400 ringgit for 2020 to 2021.

IMPROVED FDI

Malaysia's FDI will continue to gain momentum on trade diversion after its total approved FDI rose 6.5 percent year-on-year to 66.3 billion ringgit in January to September 2019.

For the year 2020, UOB KayHian Research is anticipating more compelling trade and FDI diversion opportunities to emerge, which would significantly benefit Malaysian export-oriented sectors.

We expect local suppliers and service providers to secure more multinational clients, and significantly higher outsourcing or acquisition-related transactions by Chinese mainland manufacturers, the Singaporean research house highlighted in its recent report.

China is Malaysia's second largest FDI source in manufacturing sector in 2019. It invested about 7 billion ringgit in the sector. In addition, China's Zhejiang Geely-owned Proton committed a 2.6-billion-ringgit expansion project to manufacture and assemble energy efficient vehicle and related equipment in Malaysia. This has also boosted Malaysia's domestic investment.

REGIONAL TRADE DEAL BOOST

As a member of the Association of Southeast Asian Nations (ASEAN), Malaysia will benefit from the conclusion of the Regional Comprehensive Economic Partnership (RCEP), which included 10 Southeast Asian countries and five of their major trading partners: China, Japan, Australia, New Zealand and South Korea.

BIMB Research said in its report, the trade deal would send a strong signal of the region's commitment to free trade, and could boost ASEAN's long-term potential.

"In the longer term, the region's economic prospects remain positive, supported by rising middle class leading to more domestic demand, increasing intra-regional integration, and the adoption of new technology," it added.

GOVERNMENT'S TOURISM INITIATIVE

Tourism as one of Malaysia's key foreign exchange earners will be boosted by its government initiative which targeted to attract 30 million visitors and 100 billion ringgit in tourist receipts in 2020, up from forecast 28.1 million and 92.2 billion ringgit respectively in 2019.

TA Research highlighted the government initiative "Visit Malaysia 2020" should give a boost for Malaysia's tourism industry, and other related sectors such as airlines and retailers.

"We can expect the positive spill over effects to be felt by various industries, mainly in the services sector that involves transportation, food and beverage, leisure and hospitality, hotel and retail/shopping sectors," said the research house.

Tourist arrivals in Malaysia rose 3.7 percent year-on-year to 20.1 million from January to September of 2019. Its tourist receipts also grew 6.9 percent to 66.14 billion ringgit.

Chinese tourists which were the third largest arrivals grew 5.7 percent year-on-year to 2.4 million. In terms of tourist receipts, Chinese ranked the second, with spending surged 29.2 percent to 12.8 billion ringgit in the nine-month period.

GLC REFORM

The Malaysian government has embarked on GLCs reform following its political regime change in 2018. The reform, albeit in a slow pace, is an opportunity for Malaysia to unlock its growth potential.

Maybank Kim Eng said its recent outlook report, leadership changes at key government-linked companies such as sovereign wealth fund Khazanah, in tandem with regulatory changes in sectors like telecommunications and power, are an opportunity for flow-through comprehensive restructuring of GLC management teams and corporate structures.

"The matching of capable, performance-linked management with the asset-rich but efficiency lacking GLCs is the biggest opportunity to reinvigorate Malaysia's broad economic dynamism, as well as equity market performance given aforementioned pervasive GLC influence," said the research house.