Malaysia’s GDP should pick up from 4% this year to 4.3% in 2024, according to a forecast released today by Irhamy Ahmad MRICS, Chartered Valuation Surveyor and CEO and Founder of Irhamy Valuers International, a part of Juwai IQI.
“While we predict 4.3% growth, the Finance Ministry expects it to come in between 4% and 5%,” Mr. Irhamy said. “If we are right and GDP growth hits 4.3% in 2024, that would be lower than the 4.9% forecast I made five months ago because of weaker international trade. “Inflation was the big challenge of 2023, but Bank Negara and the government’s fiscal restraint
have done a good job of bringing inflation down to the target range. That means we may see a decrease in the Overnight Policy Rate in the first half of 2024. That would help further stimulate the economy.
Tourism: “We also expect a further recovery in tourism. What’s interesting about tourism is that its employees a large number of people. They call it ‘employment intensive.’ So, the growth in tourism will directly benefit many households by providing jobs. “One reason the pandemic years were so hard on the economy is that it caused international travel to collapse, especially by Chinese consumers. Tourism industry was one of the industries most affected by the pandemic. As international travel abroad has recovered, Malaysia’s tourism sector is also improving. In 2022, tourism contributed to 14% of GDP, compared to 15.9% in 2019, before the pandemic.
Other Exports: “Malaysia economy depends on both domestic demand and export demand. In 2024, Malaysia should sell more exports than in 2023, with an increase gradually throughout the year. “The rebound in Malaysian exports will be driven by stronger demand in North America and the Euro zone. The World Trade Organization is forecasting world merchandise trade volume will climb by 3.3% next year. If the major economies beat inflation and reduce interest rates sooner than expected, exports could growth more quickly. “In the second half, my team relocated a factory from Malaysia to Mumbai, India. The factory produced sanitary wear for hospitals and is an example of a lower value industry moving out of
Malaysia to jurisdictions where it is cheaper to operate.
“Malaysia is in the middle of an ongoing shift from low-value manufacturing to producing products that generate higher returns. Infrastructure: “Penang’s Silicon Island project reveals the other half of that transition from low to high value. Silicon Island will become a hub for high technology industries and export-oriented growth, enabling Penang to continue expanding despite the limited available land. “Silicon Island will see a total investment of RM74.7 billion and the creation of 2,300 acres of new land via dredging. The benefits from Silicon Island will include RM1.1 trillion of economic activity and 220,000 jobs.
“For comparison, Silicon Island will have nearly double the 1,380 acres of the famous Palm Jumeirah in Dubai. And, instead of expensive houses like in Dubai, Malaysia’s new island will host high-value industrial and commercial property that could help our economy soar. “The stakes are high because Penang accounts for about 5% of world semiconductor exports and more than half of Malaysia’s electrical and electronics exports, helping make the country one of the world’s 10 top semiconductor manufacturers.
“Thanks to the industry’s strength and the contribution of Silicon Island, PwC believes Malaysia’s semiconductor industry will grow at a compound annual growth rate of 7% and reach an output of US$46 billion or RM212.52 billion by 2028. “Both large and small infrastructure projects contribute to the economy due to the huge total investment required to bring them to fruition.
“Among the other important new infrastructure projects in 2024 are the RTS Link with Singapore, the Central Spine Road, and the Pan Borneo Sabah and Sarawak highways.
Upside and Downside Risk Factors
“In 2024, there are two big game changers that present significant upside risk to our base case outlook. The new no-visa entry policy for Chinese and Indians and the introduction of the new progressive wage policy next year. The Progressive Wage Policy: Introduced in November and to begin this year with a pilot project involving 1,000 companies, the Progressive Wage Policy is designed to eventually benefit 1.05 million low-wage workers. If the program can scale quickly in 2024, it could add a significant boost to the economy. While the policy will directly benefit low-wage workers, once a large number of workers have been enrolled, it will have wider positive benefits. That’s because, when low wage workers receive extra income, they are more likely to it money immediately, thus injecting that money back into the economy.
There’s a great need for programs like this because the wage gap between low-skill and high- skill workers has widened by 37.4% since 2010 to 2,474 ringgit per month, according to data from The World Bank. Visa-Free Entry: In December, the government launched its visa-free entry program for stays of up to 30 days for citizens of China, India and several Middle Eastern countries including Saudi Arabia, Kuwait, Oman, Qatar, the United Arab Emirates, Iraq, and Iran. The visa program will help the tourism industry further recover from the Covid slump. It will also help Malaysia to avoid losing tourism income to other southeast Asian countries who have also introduced visa-free entry. Tourism and hospitality are an especially important part of the economy for lower wage workers because of the range of jobs at all skill levels it offers.
If visa-free entry boosts tourism in Malaysia by just one percent, that would mean RM282.3 million in additional spending. On average, each tourist who visits Malaysia spends RM2,800,according to data from Tourism Malaysia. Just a 1% increase in tourism is probably an understatement of what we will probably see this year, but even such a small relative increase
would have great benefits for the economy.
The primary downside risk in 2024 is a further reduction in global trade. While Malaysia is growing its gross domestic product, exports declined 12% in the third quarter because Europe’s, North America’s, and China’s economies have slowed.
The trade slump began in the fourth quarter of 2022. The WTO forecast 3.3% growth in world trade in 2024 but, if the slump continues, that will make it harder for Malaysia to export more.
The Economy Will Help Sustain Real Estate
“The economic situation in 2024 will directly impact both residential and commercial real estate market by affecting demand and the pipeline of new supply. Residential Real Estate: “The steady economic environment should increase consumer
confidence and spending power. Meanwhile, since we expect interest rates to fall, mortgage cost should decrease throughout 2024, making purchasing a home more affordable, and probably bringing more owner occupied and investor buyers into the market.
“The increase in tourism may lead to higher demand for short-term rental properties and vacation homes. This could be particularly significant in tourist hotspots like George Town or Langkawi. That could drive up returns for investors who own properties in these areas. “The Progressive Wage Policy could improve low-wage workers’ ability to afford housing, which
in time could increase demand for affordable homes. Commercial Real Estate: “We expect a strong tourism market in 2024, which may stimulate new investment in the hospitality sector, including in hotel, retail, and other hospitality-related
property.
“Meanwhile, the Silicon Island and other infrastructure projects will create new jobs and economic activity. Along with the gathering shift to higher-value manufacturing, that should mean higher demand. Expect more buyers for commercial and industrial real estate such as offices, manufacturing facilities, technology parks, and specialized high-tech manufacturing and
research and development facilities.
“My short take is that Malaysia’s steady GDP growth and fiscal and monetary policies should positively influence both the residential and commercial real estate markets. Expect more activity and slightly higher prices. On the downside, watch out for a decrease in external trade, which could weaken economic growth from the projected 4.3%.”
