KUALA LUMPUR (Oct 8): The World Bank has raised its forecast for Malaysia's economic growth for 2024 to 4.9%, up 0.6 percentage points from its previous forecast of 4.3% in April 2024, following the country's stronger-than-anticipated performance in the first half of the year that reflected robust growth in consumption, investment, and trade activity.
As an open trading economy, Malaysia is benefiting from the upcycle in global economic growth, which is expected to stabilise around 2.6% this year, despite ongoing geopolitical tensions and high interest rates, according to the World Bank’s lead economist for Malaysia, Dr Apurva Sanghi.
"Overall, the Malaysian economy is in a rather good place. Growth is back — the second quarter growth of 5.9% exceeded expectations. Inflation is less than 2% — it is higher than in recent quarters but still moderate. Investments are on an uptick — year-on-year investments grew in the first half of the year, both approved foreign direct investments (FDI) and domestic investments," he said during a press briefing on the World Bank's Malaysia Economic Monitor October 2024 report.
Domestically, Malaysia's improving political stability and an increasingly conducive policy environment — which has boosted investors' confidence and mobilised more investments in the country — are among factors that have contributed to the country's strong economic growth, Apurva added.
The World Bank's forecast is within the higher end of Malaysia's official projection of a gross domestic product growth of between 4% and 5% for 2024, following a 3.7% expansion in 2023.
Malaysia to achieve high income status by 2028
Based on its assumptions for a USD/MYR exchange rate of 4.54 and an average annual growth rate of 4.3%, the World Bank anticipates Malaysia to reach high-income nation status by 2028, which is within its previous 2021 projection that it would happen between 2024 and 2028.
"These projections are highly sensitive to the assumptions, but this is what we project so far. And if the US dollar-ringgit exchange rate stays at the current levels of about 4.2, then the high income goal will be reached a year earlier — in 2027," Apurva said.
However, the economist warned that "high income" does not necessarily mean "high development" and that there is always the risk of reversal.
"So even if Malaysia were to reach high income, say in 2027 or 2028, if you look at countries such as Argentina, Russia in the past, [and] Venezuela; these countries have reached high income but due to poor macro-fiscal management or poor management of commodity exports and revenues, they slipped back to middle-income status," he said.
Insufficient high-skilled jobs cause worrying levels of skill-related underemployment
While Malaysia's key labour market indicators have improved, with the national unemployment rate returning to pre-pandemic levels of 3.3% in the second quarter of 2024, Apurva highlighted that skill-related underemployment (SRU) — reflected in individuals with tertiary education working in semi-skilled or low-skilled jobs — has grown significantly over time.
The SRU rate in Malaysia rose 10 percentage points in a span of 12 years from 27% in 2010 to 37% in 2022. In terms of real numbers, Apurva said there are about two million workers who are currently working in less qualified jobs in Malaysia.
The SRU rate is highest among the youngest in the workforce, at 64% for the 15-24 years old age group, and is higher among women (42%) compared to men (32%).
Lagging states such as Kelantan, Terengganu and Perlis also have high SRU rates, indicating limited high-skill job opportunities in these states.
The underlying reason for the high and rising SRU rate in Malaysia is the insufficient number of high-skilled jobs that are being created for tertiary educated workers, said Apurva.
"In 2023, there were about 288,000 graduates that Malaysia produced. The number of high-skilled job vacancies was only 48,700. Of course, not all of these graduates will necessarily apply to high-skilled jobs, but it still gives you a sense of the magnitude of the problem," he said.
Other factors contributing to the high SRU rate in Malaysia, according to Apurva, include inefficiencies in job matching, poor links between industry and high-education institutions, as well as mismatches between job seekers' preferences and job characteristics.