Stable Local Indicators amid Challenging Global Economic Outlook


According to the World Bank’s Global Economic Outlook ( June 2019), global growth in 2019 has continued to weaken and is expected to slowly rise to 2.8% in 2021 from 2.6% in 2019 (Table 1). Global growth prospect is impacted by prevailing factors such as softened investment in emerging market and developing economies (EMDEs), possible escalation of trade tensions, and rising debt levels. In addition, the United Nation’s Conference on Trade and Development’s (UNCTAD) Trade and Development Report 2019 also indicate clear signs of recession in 2020.

The focus of the global economy is largely on the US-China trade war, and Malaysia (and Penang) as an open, trade-oriented economy is impacted by the developments of this trade war. It is hoped that the Phase 1 deal negotiated by the US and China will provide some relief to the trade war which has now gone on for almost two years.

In terms of the electrical and electronics industry (E&E), the World Semiconductor Trade Statistics (WSTS) Spring 2019 Forecast reported that the global semiconductor market experienced a 13.7% growth in 2018 to USD468.8bil, an all-time high. For the full year of 2019, growth was forecasted to be -13.3%, but is expected to increase by 4.8% to USD426.1bil in 2020 for all regions. Additionally, the Semiconductor Equipment and Materials International (SEMI)’s three-month average global billings data is a good indicator for trends in the worldwide semiconductor industry.

At the beginning of November 2018, the year-on-year growth of the threemonth average global billings showed a region of negative growth, which has yet to rebound to a positive year-on-year growth region (Figure 1).

Stable National Indicators

Meanwhile, Malaysia continued to show steady growth in 2019. According to Bank Negara Malaysia, the country recorded an average of 4.6% growth in the first three quarters of 2019. It recorded a stable 4.4% third-quarter (Q3) GDP growth (4.5% in Q1 and 4.9% in Q2). World Bank forecasts that Malaysia will record a 4.6% GDP growth in 2020 (Table 1). This is higher than the forecasted world average growth of 2.7%, advanced economies’ growth (1.5%), and the emerging market and developing economies’ (EMDE) growth (4.0%).

According to the Economic Outlook 2020 from the Ministry of Finance, growth this year is underpinned by resilient domestic demand, driven by household spending, and followed by stable labour market and low inflation. The unemployment rate of 3.3% is still at a relatively low level, although there is concern about skill-related underemployment.1 Private investment is expected to gain traction this year, and is predicted to offset the effect of lower public expenditure. Meanwhile, overall gross exports growth in 2020 is expected to increase by 1% supported by anticipated improvement in global trade activities for Malaysia, which is higher than the expected export growth of 0.1% in 2019. Gross imports in 2020 are expected to grow by 2.7%, with higher imports of intermediate capital and consumption goods.

Penang’s Economy Remains Widely Stable

Penang has continued to register a stable economic growth despite global external headwinds. In 2018 Penang’s GDP grew by 5.1% (2017: 5.1%) to RM91.2bil from RM86.7bil the previous year. It is noteworthy that Penang’s contribution to the national GDP stood at 6.7% in 2018.

In terms of GDP growth rate by sector in Penang (Figure 2), the services sector stood out as the only one that registered higher growth rate, at 6.2% in 2018 compared to 5.5% in 2017. The manufacturing, and mining and quarrying sectors continued to register positive growth rates in 2018, albeit at a lower growth of 5.4% and 4.8% respectively. Although growth in Penang’s manufacturing and mining and quarrying sectors slowed in 2018, the growth in these sectors still exceeded the national average (5.0% for manufacturing, and -2.6% for mining and quarrying). While the construction sector continued the trend of negative growth from the previous year; the rate was lower at -3.8% in 2018 compared to -9.9% in 2017. The agriculture sector is the only sector to show an entirely different coefficient of growth in 2018, at -3.1% compared to 2.2% in 2017.

The manufacturing and services sectors continued to be major engines of growth for Penang’s GDP. In 2018 the services sector accounted for 50.6% of GDP, while 43.3% came from the manufacturing sector. Meanwhile, the agriculture (2.2%), mining and quarrying (0.2%), and construction (2.8%) sectors were less significant, altogether accounting for only 5.2% of Penang’s GDP.

The continued strength in Penang’s manufacturing sector is noticeable in the approved manufacturing investments data. Penang recorded the second highest approved manufacturing investments in Malaysia for the period of January-September 2019, consisting of RM12.0bil in foreign direct investments (FDI) and RM1.3bil in direct investments. This is also the highest approved manufacturing investment ever recorded for Penang. Penang Development Corporation (PDC) industrial parks also continued to record consistent inflow of investments by companies, ranging between 21 and 38 in the period of 2014-2017 (Table 2).

In terms of GDP per capita, Penang registered a growth rate of 3.6% in 2018, reaching RM52,937 compared to RM51,115 in 2017; Penang maintains its third-place ranking in 2018 (similar ranking in 2017), after KL and Labuan.

2030: A Common Time Horizon

The announced visions of “Shared Prosperity Vision 2030” (SPV) by the federal government, and “Penang2030: A Family-focused Green and Smart State that Inspires the Nation” by the Penang state government share a common time horizon of the year 2030 in developing action plans for the long-term. Enhanced resilience at the national and state levels is important to ensure that we are able to overcome short-term fluctuations, including potential global economic slowdown.

The federal government’s focus areas of (1) technology centres of excellence; (2) high technology industry; (3) logistics hub; (4) health tourism; and (5) heritage and tourism for Penang in the SPV re-enforces the comparative and competitive advantages that Penang should continue to tap on. It is important to focus on the process rather than the end goal only. The federal government is also expected to announce the 12th Malaysia Plan in August this year. In the next decade, it will be important to continually build on economic strength, tapping on other existing strengths while continuing to calibrate the economic and trade structure to boost resilience.

The challenging economic situation is expected to persist. While global uncertainties are very much not within the control of small countries like Malaysia, continued resilience and comprehensive long-term planning with clear goals will allow Malaysia (and Penang) to withstand these uncertainties.


Lee Siu Ming is a former senior analyst at Penang Institute, and believes in the Latin phrase Audi alteram partem, loosely translated as “Listen to the other side".

Related Articles