The race for Asean’s No 3

Malaysia is expected to reduce the GDP deficit of US$9.4b with Singapore to just over US$2b next year


Malaysia is expected to surpass Singapore in terms of economic size this year, making the country the third-biggest economy within the Asean region based on gross domestic product (GDP) nominal.

According to the International Monetary Fund’s World Economic Outlook published in April this year, Malaysia’s GDP nominal — which calculates the market value of all final goods and services within a full calendar — is expected to reach US$364.9 billion (RM1.48 trillion), slightly higher than Singapore’s RM349.6 billion.

But both Malaysia and Singapore trailed neighbours Indonesia and Thailand, whose economies are expected to be valued at US$1.07 trillion and US$483.7 billion respectively.

Indonesia, the biggest economy within South-East Asia, is already the world’s 16th-largest in terms of GDP value. Malaysia will be the 36th-biggest economy in the world, besides Thailand (16), Singapore (38) and the Philippines (39).

A few decades ago, Malaysia and Singapore had been the two biggest economies in the region. But growth in Thailand and Indonesia had put both nations far ahead of Malaysia and Singapore.

According to data compiled by the World Bank, Malaysia is expected to reduce the GDP deficit of US$9.41 billion with Singapore to just over US$2 billion next year — if Malaysia’s economy expands 5.5% this year and the island republic posts a growth of 3.1% as per median projections of economists surveyed by Bloomberg. Sunway University Business School economics Professor Dr Yeah Kim Leng (picture) said Malaysia could exceed Singapore in terms of absolute economy size by 2019 as the gap between the two neighbouring nations continues to narrow.

“We can beat Singapore quite easily, provided that we implement the economic reforms necessary for us to move up the value chain, to increase high-value goods and services in order to attract high-quality investments from domestic and foreign investors,” he told The Malaysian Reserve (TMR).

Yeah said Malaysia’s dependence on oil and gas, rubber and palm oil — sectors that have traditionally been the country’s bread and butter — have provided Malaysia with a strong industrial edge.

However, he said Malaysia needs to leapfrog into the high-tech space in order to attract more foreign direct investments (FDIs).

“We’re on the right track by partnering players like Alibaba Group Holding Ltd and Zhejiang Geely Holding Group Co Ltd. But we need to attract more global brands with cutting-edge technology to invest here and increase our competitive edge,” he said.

According to Yeah, Singapore has been able to attract high-quality investments partly due to the confidence in its institutions and efficiently-run economy.

“The new government of Malaysia has increased focus on institutional reforms. So, with that in place, we can engender private sector confidence.

“Once we increase private investment growth to about 8%-12%, then we can outpace Singapore, since we have the population and resources to do so,” he said.

Affin Hwang Investment Bank Bhd chief economist Alan Tan said Malaysia’s GDP growth this year will continue to be supported by domestic demand, with private consumption to help offset the drag on private investment from cancellations or delays of mega infrastructure projects.

“While we expect some distortion to consumer spending once the Sales and Services Tax is reintroduced, we still think it’ll be manageable. All in, we maintain Malaysia’s GDP growth will hold up at 5.3% in 2018.

“With the right economic policies to drive manufacturing and services, Malaysia can overtake Singapore in terms of GDP.

“Similarly, once Industry 4.0 is effectively implemented, that should also provide long-term sustainability and attract FDIs, which will put Malaysia on a stronger growth path,” he told TMR.

But Malaysia trails Singapore on GDP per capita basis as the island republic was eighth in the world last year with US$57,714, Malaysia in the 65th position (US$9,945), Indonesia taking the 113th spot (US$3,847) and the Philippines in the 125th place (US$2,989).

“Malaysia is more advanced than the Philippines in manufacturing because we’re involved in medium- to high-end manufacturing, while they’re more centred on medium.

“So, they’re a different kind of economy. If they push more on sectors like exports, they could catch up — but from a lower base compared to Malaysia, Singapore and Thailand,” Tan said.

GDP growth for the Philippines climbed 6.8% in the first quarter of 2018, while Malaysia’s GDP rose 5.4%. The Philippine government forecast economic expansion of between 7% and 8% for the full year, while the Bloomberg survey median stands at 6.7%.

“The Philippines will be hot on our heels very soon — their sustained rapid growth is due to policies pur- sued under the current president, which have opened up the economy and attracted sizeable FDIs.

“They’re also investing substantially in upgrading infrastructure, and are pursuing cooperation with China,” Yeah said.