KUALA LUMPUR (Feb 3): The effect of stronger tourism activity in Malaysia as China reopened its borders is expected to boost Malaysia’s gross domestic product (GDP) by at least one percentage point, according to UOB Global Economics & Markets Research.

In a research note released on Friday (Feb 3), it said the expected boost further supports the firm’s forecast of Malaysia’s baseline GDP growth at 4% for 2023.

China opened its borders sooner than expected on Jan 8 to allow foreign travellers to enter and Chinese residents to travel abroad with no quarantine restrictions.

“China visitors to Malaysia were only 100,000 (1.9% share) in the first nine months of 2022 (versus 3.1 million or 11.9% share in 2019), with its ranking dropping to sixth last year from third in pre-pandemic 2019,” said UOB economists Julia Goh and Loke Siew Ting.

“Hence, based on past and current trends, the room to grow and recover is significant with positive effects on consumption of goods and services (including shopping, retail trade, and travel agencies), accommodation, passenger transport, and food and beverages sub-sectors.”

Nonetheless, they cautioned that there is a challenge in balancing the impact on inflation as China’s reopening and surge in demand may put upward pressure on prices of energy and other related goods and services.

Goh and Loke said tourism-related services components including transport services, entertainment, recreation and cultural services, package tours, and accommodation services account for 4.4% of Malaysia’s overall consumer price index (CPI) weight.

“This implies that every 10% increase in the prices of tourism-related services could directly add 0.4% to Malaysia’s headline inflation (versus our baseline forecast of 2.8% for 2023)," they said.

“Noteworthy that we did not include the effect on prices of food and beverage as well as restaurant services due to its sizeable CPI weight that could overinflate the estimate. However, we do see potential upside risk given that it is the third largest expenditure item for tourists in Malaysia."

Goh and Loke said to mitigate these downside risks and sustain the tourism recovery will require consistent and stable reopening of countries and borders, minimal quarantine restrictions and requirements and affordable travel.

They also indicated the requirement of improved travel connectivity, visa facilitation, processing of passports, build-up of capacity, technology improvements and e-payment facilities, as well as better safety and security.

Overall, tourism’s contribution to Malaysia’s GDP was 6.8% in 2019 and 6.5% in 2018, higher than the average level of 4.4% in Asia Pacific, according to UOB.

https://www.theedgemarkets.com/node/653998