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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 15 Oct 2021, 9:35 AM

 

Economic Update - 11MP: Hits and Misses

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OVERVIEW

The Eleventh Malaysia Plan (11MP), a 5-year plan covering the period from 2016 till 2020, was tabled in May 2015 by the Barisan Nasional government. The document was subsequently reviewed and revised in August 2018, three months after the Pakatan Harapan (PH) coalition took over the federal government, which coincided with the mid-term assessment of the plan. The PH government set new priorities and emphasis in its Mid-Term Review (MTR) where it took the opportunity to recalibrate and set a new direction of the economy. The highlights of the 11MP’s MTR include a broad-based reform agenda apart from the realignment of socioeconomic policies and strategies after taking into account the priorities of the new government. The 11MP’s MTR was based on 6 pillars, 22 priority areas and 66 strategies that was to have been the final push for the nation to become a high-income nation by 2024.

While the document was drafted during bullish period where the global GDP was at its 7-year high (global GDP 2017: +3.7%) thanks to favourable impact of prolonged low interest rate environment in advanced economies (US, Eurozone), there were two black swan events which affected our performance and therefore, the target under the 11MP’s MTR. The prolonged period of US China trade negotiations which stretched to almost two years hurt our manufacturing sector, one of our key engines of growth. It also took a toll on our private investment, exports, FDI, equity market, forex reserves, Ringgit and above all our GDP given a ~22% share of manufacturing to GDP. The unexpected emergence of a global health pandemic, COVID-19, which started in December 2019 was an even bigger headwind for the global economy. The services sector, given their contact-sensitive nature, was the biggest casualty of the pandemic which has yet to recover even after almost two years since the start. The disruptions as a result of the need to close the economy to protect lives inflicted severe damage on the economy, more so when services sector contributes the largest share to the economic pie (~58% of GDP).

With the 12MP around the corner, this report will assess some of the hits and misses of 11MP’s MTR with a specific focus on economic indicators. Accelerating the Digital Transformation agenda, setting the path on consolidation measures, economic rejuvenation and recalibration are set to be among the main themes of the 12MP. Even with the best of intentions, the government still needs to be wary of black swan events which could emerge unexpectedly and affect performances. 6MP (Twin Tower Terrorist attack, Dot com Bubble burst), 8MP & 9MP (Twin Global Crises), 10MP & 11MP (Tohoku earth quake and tsunami, US-China Trade War, COVID-19 pandemic) are such instances which is an indication that crisis is inevitable and there has to be a buffer to account for unexpected events like this.

The highly integrated nature of the global economy, trade and financial sectors suggest that a boom-bust situation could take place just as easily, rendering the country to face the brunt of contagion and shocks more so when we are one of the most open economies in the world. The situation is risker now given our stretched fiscal condition no thanks to the heavy burden of fighting the COVID-19 pandemic. 12MP is therefore an important document to put Malaysia back on its growth path, sustainably and inclusively.

12MP is set to lay the path on Malaysia’s fiscal consolidation strategy, delicately balancing that with the need to produce a convincing and sustainable economic growth while concurrently addressing the negative impact of the pandemic (disposable income, labour market, education). The document is expected to lay the plan for the recovery of key sectors like services and private investment which could be a drag if not addressed. 

12MP is also set to push for greater Digital Transformation initiatives (IR 4.0; MyDigital) particularly when we lag on labour productivity growth since the last few years, an urgent solution needed to pull investors back in droves. The government is also expected to accelerate on its Sustainable and Development Goals (SDGs) in line with its commitment under the Sustainable Development Agenda 2030 (2030 Agenda). It is imperative to give this commitment a strong push after it slowed down since the start of COVID-19.

 

Source: PublicInvest Research - 24 Sept 2021

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