East Asia, Pacific Region economy growth slowing down

by SHAUQI WAHAB

MALAYSIA’S economic trajectory in the East Asia and Pacific region is still growing faster than the rest of the world.

However, the pace of the growth is slowing, with consumer spending and investment cooling off across many countries.

World Bank Group chief economist of the East Asia and Pacific Region Dr Aaditya Mattoo said Malaysia, along with other nations in the region, remains highly dependent on exports, which have begun to recover but at a gradual pace.

A significant development is the shift in trade patterns, where China’s share of exports to advanced economies like the US and the European Union (EU) has decreased, while its exports to ASEAN countries and the rest of the world have increased.

Malaysia’s integration within the ASEAN trading network is deepening, but it also means that external shocks in China or other key economies could have a ripple effect.

Mattoo also pointed out that inflationary pressures have eased in most countries, including Malaysia, which provides some breathing room for monetary policies to remain non-expansionary.

Hence, he warned of three significant risks to Malaysia’s economic outlook.

First, the escalating Middle East conflict, which has already raised shipping costs by 40%, could affect global demand.

Second, China’s slowing growth, traditionally a major driver of regional prosperity, poses a threat.

Lastly, rising trade protectionism worldwide, including within ASEAN, could further hinder recovery efforts.

One of the most pressing concerns, especially for Malaysia, is the impact of technology on jobs.

As Mattoo explained, the rise of automation and robotics is transforming industries, and while these innovations may boost productivity, they are also displacing low-skilled workers.

“The adoption of industrial robots in sectors like car manufacturing and electronics has generated many high-skilled jobs, but it has also displaced millions of low-skilled workers,” he said at the October 2024 East Asia and Pacific (EAP) Economic Update today.

The report also indicates a need for Malaysia to invest more in digital skills, Science, Technology, Engineering and Mathematics (STEM) education, and flexible labour mobility to help workers transition into new roles in an increasingly automated economy.

Mattoo also noted that conflicts like those in Ukraine and the Middle East not only result in human suffering but also disrupt global trade.

Oil prices had already gone up from US$70 to over US$80 (RM333.60) per barrel and any further escalation could exacerbate supply chain disruptions, especially for oil.

The rising transport costs, currently 40% higher than before the conflict, would further strain economies in the region.

In addition, if these tensions undermine global confidence, both demand for exports and investments in the region could suffer, particularly for countries highly dependent on specific sectors like manufacturing and oil imports.

Mattoo also addressed the Federal Reserve’s interest rate cuts in the US and how they create a more agreeable financial environment, offering South-East Asian countries more room to relax their monetary policies without risking capital outflows or currency depreciation.

Rapid technological advancements are reshaping the job market in Malaysia and Indonesia.

Mattoo stressed the need to equip the workforce with both soft and hard skills, including digital and technical capabilities.

“It is shocking that in a country like Malaysia, which is on the verge of becoming a high-income country, 40% of children at the age of 10 cannot read and understand and respond to questions on an age-appropriate type text,” he said, adding that Malaysia has to strengthen its basic education first.

For Malaysia, the challenge also lies in retaining talent, as many skilled workers choose to work abroad in countries like Singapore.

He advised that the solution is to reform sectors like services and manufacturing to create more innovative and attractive job opportunities domestically.

The need for both countries to embrace technology while addressing its ethical implications is important to ensure that the workforce is prepared to navigate this new landscape.