Lee told a briefing that SERC is holding on to its forecast GDP growth rate of 4.1% for 2023, on the back of an expected headline inflation rate of 2.8% to 3.5% this year.
KUALA LUMPUR: Malaysia’s gross domestic product (GDP) growth is estimated to have moderated to between 4% and 4.5% in the first quarter of 2023 (1Q23), from a 7% expansion recorded in the final three months of last year, says Socio-Economic Research Centre (SERC) executive director Lee Heng Guie.
SERC in its latest quarterly economic tracker (January-March 2023) said the slowdown in GDP growth for the quarter under review was attributed to a sharp pullback in export growth, which put a dampener on external trade.
While festive demand has fuelled private consumption, increased prices and cost of living pressures as well as higher interest rates have reduced net disposable income and discretionary spending.
Lee told a briefing yesterday that SERC is holding on to its forecast GDP growth rate of 4.1% for 2023, on the back of an expected headline inflation rate of 2.8% to 3.5% for this year.
Although concurring with the view of most economists that the brakes on exports would mean the local economy would hinge on domestic consumption, he said the effects of the pent-up demand of 2022, which has turned the year into a “high base”, has been on the wane since the start of this year.
Lee also echoed Bank Negara’s view that while Malaysia would see subsiding growth, it would not be slipping into a recession.
He also anticipates another 25-basis-point rate increase by the central bank to bring the overnight policy rate to 3%, perhaps by next month.
In preparation for persistent headwinds, which include global macroeconomic factors such as prolonged elevated inflation, geopolitical tensions especially between Russia and Ukraine, and lingering concerns in the banking sector following the recent collapse of a number of American banks, Lee urged the government to follow up on its good work in attracting more foreign investments into the country.
“We applaud the recent working visit by Prime Minister Datuk Seri Anwar Ibrahim to China and securing RM170bil in investment pledges, so this is certainly positive.
“However, we hope the government will follow up effectively from the memoranda of understanding secured by the Prime Minister,” he said.
Lee said the more pressing need would be to address certain “structural issues” in the country to better prepare Malaysians for any challenges that may lie ahead, particularly pertaining to income earning power, spending habits and retirement.
“Our labour productivity grew at a very moderate pace of 1.4% per annum in the decade between 2011 to 2021, compared to some of our neighbours.
“For example, Singapore and Thailand’s labour productivity both grew at about 2.5%, Philippines at 3.5% while Vietnam was at 5%,” he said.
Besides that, he said, as at the final quarter of last year, skilled workers made up only 27.9% of the Malaysian workforce while semi-skilled employees constitute almost 60%.
At the same time, unemployment among youths aged 15 to 24 is at 11.8%, slightly higher than during the pre-lockdown 10.4% rate of 2019.
Lee suggests migrating Malaysia’s workforce to a less labour intensive and more highly skilled one, to constructively combat the issue of low wages and dependency on foreign workers.
He said the share of compensation of employees to gross domestic product (GDP) ratio in 2021 for Malaysia was relatively low at 34.8% compared with regional peers, with South Korea, Australia and Singapore scoring 47.9%, 47.7% and 39.4%, respectively.
“We acknowledge that increasing wages reasonably comes with an employee improving their productivity.
“However, improving productivity comes first of all with better education and training, which would increase the value of employees to their company,” he said, adding that it is an issue that would not be resolved overnight as it involves much consideration.
Lee pointed out that financial literacy among Malaysians, at 34%, was also lacking compared to other countries, with Singapore, for example, standing at 78% as at 2019 and Hong Kong at 92%, while the average among countries in the Organisation for Economic Co-operation and Development measures up to 57%.
With the Employees’ Provident Fund (EPF) reporting that 6.67 million or 51.5% of its members below the age of 55 have less than RM10,000 in their accounts as at end-2022, Lee said Malaysia’s social protection system will not be sufficient to support an ageing population.
“We estimate that by 2030, people aged 60 and over will make up approximately 15% of the working population.
“According to the RAND Labour and Population Research, every 10% increase in the elderly population aged 60 and above would result in a 5.5% potential decline in GDP per capita growth,” he added.
A World Bank finding estimates that by 2056, over 20% of Malaysia’s population would be above the age of 65, Lee said, adding that the country also has a high household debt-to-GDP ratio of 81.2% as at December 2022.
As such, he encouraged members of the workforce, including business owners, to be disciplined and continue to contribute to the EPF, while practicing a financially savvy lifestyle.
Lee reiterates his concerns on the allowance by the government for Malaysians to obtain bank loans with their EPF accounts as support, where members below the age of 55 can submit an advance notice for the age 50 or age 55 conditional withdrawal, provided that they have at least RM3,000 of savings in their Account 2.
Some reforms the SERC is suggesting to look at are structural support for the ageing population including setting up a national healthcare insurance to support the subsidised healthcare system.
It also suggested the enactment of Senior Citizen Act to safeguard the well-being of the elderly, as well as increasing the flexibility of the labour market in generating suitable employment opportunities for elderly individuals.
