A RECENT report published by the Institute of Chartered Accountants in England and Wales (ICAEW) sheds light on the economic challenges faced by Malaysia as its export sector grapples with sluggish growth.
The study points to a range of factors, including changing consumer behaviour, a global downturn in the semiconductor industry, geopolitical uncertainties and weak growth in key export partners.
With cautious optimism, it said Malaysia must navigate these obstacles to ensure its economic resilience in the face of a challenging global environment.
The ICAEW report highlights Malaysia’s export performance, which has experienced a decline in volumes over recent quarters.
It noted that the shift in consumer preferences from goods to services globally, coupled with the downturn in the semiconductor industry, has significantly impacted export growth in Malaysia and other Asian economies.
Particularly, it said, economies with a specialisation in IT and electronics, such as Singapore, have been hit the hardest.
ICAEW said geopolitical uncertainties and the escalating tensions between the US and China further complicate Malaysia’s export landscape.
The report reveals that trade tensions and restrictions imposed by the US have disrupted the flow of IT products between the two countries.
As a result, it said Malaysian exporters are adjusting their strategies in response to these trade tensions and the shifting priorities of the Chinese government.
These developments, it pointed out, have dampened export growth prospects for Malaysia and its regional counterparts.
The ICAEW report also identifies easing external demand as a significant challenge for Malaysia’s export sector.
In addition, recent challenges faced by the banking sector and tighter lending standards pose further headwinds.
The rise in interest rates, combined with potential impacts on global growth, exerts downward pressures on goods exports, it said.
ICAEW said these pressures are expected to persist throughout the second half of 2023, with only a mild improvement anticipated in 2024.
Drawing on its research, the ICAEW report predicts a slowdown in South-East Asia’s economic growth, including Malaysia.
Its projected GDP growth rate for South-East Asia in 2023 stands at 3.8%, down from 5.4% in 2022 and below the consensus expectation of 4.1%.
“Overall, while Malaysia’s GDP growth is projected to slow to 2.6% this year, it is important to recognize the overall perceived resilience of the economy, with most local forecasts predicting above 4% GDP growth.
“This growth rate may be lower than some consensus forecasts and the central bank’s projections, but it is still a positive sign,” it said.
Given the challenges ahead, the report emphasises the importance of strategic planning and risk mitigation for Malaysia’s economy.
Diversifying the economy, reducing reliance on exports and promoting domestic consumption are key strategies to consider.
Supporting the growth of the service sector, fostering innovation and embracing technological advancements can help alleviate the impact of the export slowdown, it added.
ICAEW said strengthening trade relationships with alternative markets and optimising resource allocation within the country will be crucial for Malaysia to navigate the uncertain global landscape. — TMR / pic TMR FILE
- This article first appeared in The Malaysian Reserve weekly print edition