Penang Strives and Thrives Against Global Macroeconomic Headwinds

By Yeong Pey Jung, Ong Wooi Leng, Negin Vaghefi

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ACCORDING TO THE latest World Economic Outlook report published by the International Monetary Fund (IMF), global economic growth has slowed from 6% in 2021 to 3.2% in 2022, and is expected to further decelerate to 2.7% in 2023 amid tightening financial conditions in most regions, Russia’s invasion of Ukraine, the lingering Covid-19 pandemic and the rising cost of living.

This is the lowest growth in two decades, except when the global financial crisis raged and during the acute phase of the pandemic.[1]

Being an open trade-oriented economy, Malaysia’s – and Penang’s – economic growth prospects have been put at risk by the unstable external environment. Yet, the growth momentum persists. According to the Ministry of Finance’s (MOF) economic outlook for 2023, the country is expected to experience economic growth of 6.6% to 7% for 2022 and is projected to grow moderately between 4% and 5% in 2023, backed by ongoing policy support to mitigate the aforementioned adversities.

Stable Growth for Penang

Penang’s economy is on an upward track towards recovery from the pandemic. Achieving 6.8% in economic growth in 2021, Penang outperformed Malaysia (3.1%) and recorded the highest growth among states. This remarkable growth was mainly a result of the 12.4% and 12.9% growth rates in the manufacturing and construction sectors (Figure 1) – the former primarily driven by a 16.5% increase in Electrical and Electronics (E&E) products. All sectors registered higher growth rates in 2021 compared to 2020 except the agriculture sector (-2.4%), largely due to lower production, especially in the fisheries and aquaculture sub-sectors (approximately -23%).

The economic structure of Penang is manufacturing- and services-oriented. In 2021, the services sector accounted for 47.4% of its GDP, while 47.3% was from the manufacturing sector. The agricultural (2%), mining and quarrying (0.1%) and construction (2.5%) sectors are much less significant – in total accounting for less than 5% of Penang’s GDP.

The manufacturing sector continues to play a key role in boosting Penang’s economic growth as an important source of innovation and competitiveness, and makes significant contributions to the GDP, to external trade and in job creation. In 2021, its E&E sector made up 33.6% of the state’s GDP, and was its largest contributor.

The reopening of borders and economies across countries resulted in an increase in international merchandise value. Consequently, in 2021, Penang saw higher growth rates in imports (19%) and exports (7.3%) compared with 2020, and remained the most important contributor to Malaysia’s trade. From January to October 2022, both exports (34.3%) and imports (29.9%) increased significantly compared with the same period in 2021 (Table 1). As one of Malaysia’s largest export exit points, Penang International Airport handled 29.6% of the country’s exports.

Flourishing Domestic Manufacturing Investments in Penang

Spurred by the increased demand for semiconductor equipment worldwide, the US-China trade tension and Malaysia’s weak currency, Penang secured the highest-ever (RM76.2bil) capital investments in 2021 – 97.6% or RM74.4bil of which were from foreign investors, and 2.4% or RM1.8bil of which from domestic investors.

While the approved capital investments have moderated in 2022, domestic manufacturers are still benefitting from the positive spillover effects from foreign investments in previous years.

Out of the RM7.9bil approved for the first six months of 2022 in Penang, 38% or RM3bil were domestic investments – the largest value of domestic investments made in Malaysia. Nearly 60% of it was approved for the Batu Kawan Industrial Estate, followed by Batu Kawan Industrial Park (8.5%) and Bayan Lepas Free Industrial Zone (FIZ) Phase IV (6.8%). 

Overall, a total of 10,277 new jobs were created. In terms of capital intensity, the machinery and equipment industry generated the highest capital per employment value for the first half of 2022, with RM2.1mil worth of capital produced for each employment created (Figure 2).

While E&E made up the largest approved capital investment in Penang, the industry is estimated to produce about RM650,000 worth of capital for every employment created and ranks fourth in the capital-employment ratio among industries in Penang.

The key impetus to Malaysia’s GDP, E&E products achieved the highest growth rate in sales value for the period of January to October 2022. It rose 21.8% compared to the first ten months of 2021. That said, the World Semiconductor Trade Statistics (WSTS) projected that the global semiconductor market is expected to slow down by 4.1% in 2023,[2] caused by rising inflation and weaker demand for the memory segment, which is projected to fall by 17% compared to 2022.[3]

The semiconductor supply chain is also affected by the geopolitical conflicts, leading to the imminent deglobalisation of the US semiconductor industry. Although the US is still leading in research and design, the decoupling of supply chains will become a hurdle since semiconductor manufacturing in the world has become highly specialised in niche areas.

Penang’s Resilient Labour Market

Penang’s labour market indicators show a positive recovery post-pandemic. The labour force participation rate exceeded pre-pandemic levels at 70% in the third quarter of 2022, which may be due to the recent popularity of gig activities.

The unemployment rate went down to 2.6% in the third quarter of 2022, easing at a faster pace than the national rate (3.7%) (Figure 3). Likewise, the reported loss of employment fell tremendously from 10,465 people in 2020 and 3,519 people in 2021, to not more than 2,000 people as of 9 December 2022.

Nevertheless, labour shortages continue to be a core issue across economic sectors in Penang. For lower-skilled shortages, this is addressed by the utilisation of automation and robotics in restaurants, retail trade and recreation. On the other hand, more work flexibility and good employee compensation may have driven many to take jobs in the gig economy; these, coupled with the higher currency rate offered in Singapore, are reasons for labour shortages and brain drain in higher-skilled jobs.

Among US technology companies, the recent mass layoffs after over-hiring of workers during the pandemic boom are showing signs of normalisation in revenue. Apart from that, rising inflation, higher interest rates and geopolitical issues also played a part in job cuts. As Penang is strongly connected to the US tech manufacturing industry, the demand for workers is expected to ease in 2023.

Strong Tourism Recovery

With the full reopening of both domestic and international borders since 1 April 2022, the tourism sector – historically a major contributor to Penang’s economy – enjoyed a much-needed revival in 2022. International tourist arrivals to Malaysia saw a significant spike in the aforementioned month and recorded an 844.8% increase from the previous month.[4] Even though the growth rate slowed in the coming months, it has remained positive.

Passenger movement at the Penang International Airport saw a significant upsurge in Q4 of 2021, where quarter-on-quarter growth rates saw 17-fold and 11-fold increases for total arrivals and departures respectively (Figure 4). These are made up of mostly (98%) domestic visitors.

Though the growth rate of the tourism sector subsequently moderated, volume-wise, passenger movement continued to increase, and the number of international visitors improved by leaps and bounds. Even so, it was still far from pre-pandemic numbers, where the total passenger movement for the first two quarters of 2019 was more than three times that of 2022. Nevertheless, the volume of visitors to Penang is expected to increase over time, with hopes of it returning to the vitality it showed before the pandemic.

Hotels in Penang also recorded improvements to their Average Occupancy Rate (AOR) with the reopening of borders – hotels were fully booked during the Hari Raya Aidilfitri holidays in May 2022.[5] According to Tony Goh, the Chairman of the Malaysian Association of Hotels (MAH) for the Penang chapter, the industry is anticipating an even better outlook in the coming months. In July 2022, hotels had observed a 50% AOR during weekdays, and were often fully booked on the weekends.[6] With the revival of the tourism sector, three new hotels are expected to launch in Penang, though hotels also currently face the problem of labour shortages.

The number of patients and revenue collected in the medical tourism industry also saw marked improvement, recording a year-on-year increase of 189.3% and 365.3% respectively in May 2022 as well as a 358.7% and 579% increase respectively in August 2022. Various private hospitals in Penang also saw the return of Indonesian health travellers in significant numbers. Nevertheless, these are still four times less than that of 2019.

The tourism sector is projected to continue its trend of revival in 2023. Furthermore, with a new direct route from Penang to Phnom Penh[7] and a partnership between Penang Global Tourism and AirAsia[8], more domestic and international visitors will be expected to grace the shores of Penang.

Aquaculture – A Key Driver in Penang’s Agriculture

While the agriculture sector does not significantly contribute to the state’s GDP, the sector plays an important role in providing raw materials to resource-based industries, such as the food manufacturing sector. The aquaculture sub-sector is the largest contributor to the state’s agricultural income, and Penang is the third largest producer of aquaculture products in the country after Sabah and Perak. In 2021, its aquaculture production gained the second-highest wholesale value (RM562.5mil) in the country after Perak. Both aquaculture and marine-capture fisheries production dropped by 1.3% and 37.8% respectively in 2021 compared to the previous year, mainly due to labour shortages and higher input costs.

In the crop segment, in 2021, Penang recorded a high self-sufficiency level (SSL) for vegetables, fulfilling over 81.4% of domestic demand. Although the area of paddy fields dropped by 5.3% in 2021 compared to 2019, its yield increased by 21.4%, meeting 60% of the domestic demand for rice (Figure 5).

In the livestock sub-sector, chicken and duck farming remains the predominant livestock production in Penang, followed by pork. In 2021, pork (227.3%) and poultry (113.3%) had a higher SSL compared to eggs (42.6%), fresh milk (25.2%), beef (20.9%) and lamb (5%). The increased prices of animal feed as well as the lack of labour are expected to adversely have affected overall livestock production in 2022.


[1] International Monetary Fund. (2022). World Economic Outlook: Countering the Cost-of-Living Crisis. Washington, DC. October. Retrieved from:

[2] World Semiconductor Trade Statistics. (WSTS, 2022). WSTS Semiconductor Market Forecast Fall 2022. November. Retrieved from

[3] Electronics Specifier. (2022). Weaker demand, inflation anchor global semis market.

[4] Tourism Malaysia. (2022). Tourist Arrivals. Retrieved from!range=month&from=202101&to=202207&type=55872e6e2bd39,55872c90df266&destination=34MY

[5] Buletin Mutiara. (25th May 2022). MAH Penang to revive hotel industry. Retrieved from

[6] McIntyre, I. (22nd July 2022). Penang’s tourism sector gears up for rebound, three new hotels to be introduced. Retrieved from

[7] Murugiah, S. (9th November 2022). AirAsia starts new route to Phnom Penh from Penang, retrieved from

[8] AirAsia. (16 August 2022). AirAsia partners Penang Global Tourism to further elevate Penang as region’s preferred tourism destination, retrieved from

Yeong Pey Jung

is a senior analyst with the Socioeconomics and Statistics Programme at Penang Institute. She is a reading enthusiast and is surgically attached to her Kindle.

Ong Wooi Leng

heads the Socioeconomics and Statistics Programme at Penang Institute. Her work lies in labour market analysis and socio-economic development.

Negin Vaghefi

is a senior analyst at Penang Institute. She holds a Ph.D. in Environmental Economics. Her research interests include agri-environmental economics, climate change, green economics, poverty and income inequality, and policy analysis.