Digital boom a catalyst to increase Malaysia’s economic growth

Malaysia is in the sweet spot in welcoming the digital revolution, says director

By IZZAT RATNA / Pic By ISMAIL CHE RUS

The rising digital disruption and robust e-commerce penetration in Malaysia are expected to boost the country’s overall economic growth, in tandem with the significant increase in consumers’ spending power.

Templeton Emerging Markets Group global and small-cap strategy director Chetan Sehgal (picture) said based on the recent economic movement, many digital investments are penetrating the Malaysian market.

He said the movement is also supported by the aggressive efforts among local companies to progress into technological-based business models.

“Malaysia is in the sweet spot in welcoming the digital revolution amid the booming convergence that is currently taking place within this space,” he told reporters at Temple- ton’s Market Outlook 2018 media briefing in Kuala Lumpur yesterday.

He said in many markets, changes are a lot more difficult to take place due to stringent regulations and policies.

“I think that Malaysia, being an open economy, would actually encourage more growth in the virtual landscape.

“With a more robust digital revolution happening, there would also be a bigger increase in the spending power of the average consumer,” Sehgal said.

He said the growing Internet economy is also expected to allow Malaysia to diversify and not rely mainly on normal raw materials export, while creating a good source of demand.

Sehgal added that Malaysia could easily leverage on this positive phenomenon amid the global and domestic e-commerce boom, thus allowing the growth of the digital space.

However, he said Malaysia is still way behind other developed countries and other emerging markets for the digital space to contribute significantly to the gross domestic product (GDP).

“In a world that is dominated by technology companies such as Google Inc, it is very difficult for smaller countries to come out with a unique Internet model.

“But we do believe that e-commerce is a secular trend.

“Therefore, it is just a matter of time before the digital space starts contributing more to Malaysia’s overall annual economic growth,” he added.

The Malaysian Reserve recently reported that online marketplace 11street has projected Malaysia’s e-commerce penetration rate to reach about 5% of the total retail market in 2018.

According to Malaysia Digital Economy Corp, the digital economy has contributed some 18.2% of Malaysia’s GDP this year, and is expected to exceed the projected target of 20% earlier than 2020.

On the ringgit’s performance, Sehgal said the currency is expected to continue to appreciate throughout 2018 on the back of stronger GDP contribution, coupled with a rise in export earnings.

“We are really hopeful for the appreciation to continue because from our perspective, Malaysia is still quite undervalued in terms of currency as it has not appreciated that much.

“However, based on our knowledge about the currency, it is actually quite impossible to predict its movement because there are a lot of macro and micro economic factors involved for any significant changes,” he said.

Sehgal added that a catalyst would have to take place for the valuations to soar high again.

Malaysia’s GDP growth expanded 6.2% in the third quarter of 2017 (3Q17), the highest since 2Q14 — driven by domestic demand and particularly, private sector spending.

Domestic demand grew 6.6% in 3Q17 compared to 5.7% in 2Q17, boosted by private sector expenditure which rose 7.3% versus 7.2% in 2Q17, and public sector spending which grew 4.1% versus 0.2% in 2Q17.

Moreover, private consumption advanced 7.2% during 3Q17, slightly higher than 7.1% in 2Q17.