a.

Bloomberg Intelligence economist Tamara Mast Henderson said Malaysia's

economic outlook in the second half of the year may be more positive as oil prices have

recovered and supportive measures taken by China, Malaysia's top trading partner, are

bearing fruit. Discuss.

Malaysia is one of the five clear-cut winners globally with the rise in oil prices, this is because

as a one of the net exporter of oil and as a large exporter of liquefied natural gas. The allocation

of the oil price would provide more fiscal room for the Malaysia’s government. Overall, higher

oil prices would raise upside risks to the Malaysia gross domestic product growth.

In turn, Malaysia will received benefits in the terms of economic growth and it will produce a

higher living standards and helps to lift people out of extreme poverty and improve

development outcomes.

The supportive measures taken by China such as revival of ECRL rail project, revival of Bandar

Malaysia Project and secured RM1.88 billion loan for Proton from China Construction Bank

for future business expansion will also will leaving an impact to the number of employment

because it will sustained growth stimulates jobs and contributes to lower unemployment rates

which is turn helps to reduce income inequality.

From the sustained growth of jobs it will directly proportional to the fiscal dividend because

the higher the income from the salaries through the higher economic growth, the higher the tax

revenues and reduce government spending and give more benefit related to the welfare.

Better growth may attract foreign direct investment projects and it will gives a few
advantages such as investors will starts to build new factory and create new opportunities.

1
This leads to an increase in income and more buying power to the people, which in turn leads
to an economic boost for Malaysians.

Reference:

https://www.tutor2u.net/economics/reference/benefits-and-costs-of-economic-growth

https://www.nst.com.my/business/2017/11/301749/nomura-malaysia-benefit-rising-oil-prices

https://themalaysianreserve.com/2018/04/30/higher-oil-prices-to-divide-emerging-markets-

benefit-malaysia/

https://connectusfund.org/17-big-advantages-and-disadvantages-of-foreign-direct-investment

2
b. “Malaysia's economy ended 2018 on a stronger note, recording the first pickup in

growth since the third quarter of 2017”. Discuss at least 3 factors that have contributed

to this.

1. Private consumption expanded at a stronger pace

Domestic demand recorded a stronger growth of 5.6%, as the higher private sector activity

more than offset the decline in public sector spending. Private consumption expanded at a

stronger pace, the highest since the first quarter of 2015. This was driven by continued strength

in income and employment. Consumer spending was also boosted by the lower inflation during

the quarter following the zerorisation of the Goods and Services Tax (GST) rate1 and stronger

consumer sentiments. Private investment growth was higher at 6.1%, driven mainly by capital

spending in the manufacturing and services sectors. The better performance was supported by

positive business sentiments, favourable demand conditions and continued high capacity

utilisation during the quarter. Public consumption registered a higher growth of 3.1%,

supported by improvement in supplies and services and sustained growth in emoluments.

Public investment continued to contract during the quarter. This was in part due to the near

completion of ongoing projects and lower Federal Government development expenditure.

Growth in gross fixed capital formation (GFCF) improved to 2.2%, attributed to higher private

sector investment activity. By type of assets, capital spending on machinery and equipment

rebounded to 3.6%. Investment in structures expanded at a slower pace of 2.1%, due mainly to

a slower expansion in investments in non-residential property such as office and retail space.

2. Continued expansion in major economic sectors

On the supply side, growth was affected by commodity-specific shocks. Major economic

sectors, notably the services and manufacturing sectors, remained supportive of growth.

3
Growth in the mining sector contracted, due mainly to declining natural gas output following

unplanned supply outages. The agriculture sector’s growth declined as the oil palm sub-sector

was affected by production constraints and adverse weather conditions. Growth in the services

sector was sustained during the quarter, driven primarily by the wholesale and retail trade sub-

sector arising from increased household spending following the zerorisation of the GST rate.

Growth was further supported by the information and communication sub-sector, following

continued strong demand for data communication services. Growth in the finance and

insurance sub-sector was driven by continued strength in lending activity. The manufacturing

sector grew at a more moderate pace supported by continued strength in the electronics and

electrical (E&E), consumer- and construction-related clusters. This can be attributed to the

continued demand from fast growing semiconductor segments. These gains partly offset the

slower performance in the primary-related cluster which was affected by the commodity-

specific shocks upstream. Growth in the construction sector continued to moderate in the

second quarter. In the civil engineering sub-sector, growth was supported by the ongoing

transportation, petrochemical and power plant projects. In the residential and non-residential

sub-sectors, growth continued to decline. The development partly reflected the significant

number of unsold residential properties and oversupply of office spaces and shopping

complexes

3. Lower inflation during the quarter mainly reflected by the GST rate.

Headline inflation, as measured by the annual percentage change in the Consumer Price Index

(CPI), declined to 1.3% in the second quarter of 2018. The lower inflation outcome mainly

reflected the zerorisation of the GST rate. As a result, inflation declined to 0.8% in June. The

decline in prices was broad-based where more than 90% of the items that were previously taxed

at the standard-rate under the GST were observed to register price declines ranging between

4
0.06% and 6.75%. As a result, the percentage of items in the CPI basket that registered inflation

of more than 2% declined to 18% in the second quarter. However, the extent of price decline

in June was smaller than anticipated. Prices of standard-rated items in the CPI basket only

declined by an average of 2.3%. Core inflation, excluding the impact of the GST zerorisation,

also moderated during the quarter to 1.5%. This was mainly due to lower inflation in the food

away from home sub-category, contributed by the stronger ringgit exchange rate in the first

half of 2018 relative to the second half of 2017. Demand-driven inflation remained stable.

Supportive labour market conditions Labour market conditions in the second quarter of 2018

remained supportive of growth. Labour force expansion continued to match net employment

gains, resulting in an unchanged unemployment rate at 3.3%. Employment conditions in the

quarter registered stronger growth of 2.4%. In the financial sector 4, there was a net

employment gain of 1,412 jobs to 165,628 employed persons. This mainly reflected the

increase in high-skilled occupations. Private sector wage growth moderated to 5.7%.

Manufacturing wage growth moderated to 10.1% from a strong growth of 13.9% in the first

quarter of 2018. On the other hand, the services sector recorded an improvement of 3.7% in

wage growth, supported by the wholesale and retail trade, and professional services sub-

sectors.

References: http://www.bnm.gov.my/files/publication/qb/2018/Q2/p3.pdf

5
c. Give three economic strategies that the government can adopt and implement to
make the country a developed nation by the year 2025.

1. Enhancing Sectorial Growth through Productivity Improvement

The strategies that the government can adopt and implement is to give initiatives
implementation to drive the sectorial growth. These initiatives comprise accelerating services
sector transformation, re-energising manufacturing sector as well as developing modern and
productive agriculture sector. Sectorial growth will be enhanced by improving productivity,
increasing technology adoption and digitalisation as well as strengthening the business
ecosystem.

2. Increasing Export Capacity

The main focus is to increase the number of exporters and explore new markets to strengthen
the capacity of industries. So, measures aimed at increasing the internationalisation of
Malaysian firms, particularly SMEs, must be implemented through various initiatives. The
programmes will be undertaken to enhance export readiness of SMEs and improve
international market compliance.

3. Improving Market Efficiency

Market inefficiency and unhealthy competition are threats to economic growth and sustainable
development. In this regard, market distortion and unfair practices must be addressed to
promote market efficiency and healthy competition in the economy. The focus must be given
in reviewing and streamlining the role of state-owned enterprises (SOEs) and monopoly entities
to meet the objectives of enhancing market efficiency and fair competition.

Reference: https://www.talentcorp.com.my/clients/TalentCorp_2016_7A6571AE-D9D0-
4175-B35D-99EC514F2D24/contentms/img/publication/Mid-
Term%20Review%20of%2011th%20Malaysia%20Plan.pdf