The Edge Markets (29/04/2020) - KUALA LUMPUR (April 29): Malaysia is currently facing several challenges in continuing its growth trajectory, despite having made commendable progress over the past four decades, said Moody’s Analytics.
In a research note today, it said the challenges include income inequality — a growing issue among Malaysian states, particularly between the richer manufacturing hubs and states that rely on agriculture and other natural resources like palm oil and mining.
“The country’s ageing population appears to exacerbate this as younger workers migrate to urban areas, while the older population moves back to rural areas to retire,” it said.
It said Malaysia had also struggled to move up the value chain, and there are concerns about the country being stuck in the “middle income trap” — unable to sustain high rates of growth to reach high-income status.
While manufacturing continues to drive economic growth, Moody’s Analytics said Malaysia is moving towards diversifying its economy through services such as tourism and Islamic banking.
“Prevailing demographic and human capital trends, however, indicate that urbanised areas would disproportionately benefit from this change in industry composition, widening the income gap among the states,” it said.
On long-term projections, Moody’s Analytics said Malaysia needs to adapt to broader trends as being a net exporter of petroleum and palm oil, it is heavily dependent on volatile commodity prices and changes in global demand.
“However, crude oil’s share of exports decreased steadily from a high of 6.5% in 2008 to 3.7% in 2018, while palm oil’s share increased from 3.6% in 2005 to a peak of 8.5% in 2011, before falling back to 3.9% in 2018.
“There has also been a move by key trading partners towards more environmentally friendly products.
“The European Union (EU), for instance, is looking at imposing new limits on food contaminants in refined fats and oils, including palm oil,” it said.
Meanwhile, Moody’s Analytics said the crude oil industry is also challenged by demand for cleaner energy.
“Malaysia has plans to diversify its energy sources, but for palm oil, it is planning to challenge the EU in the World Trade Organization, rather than adapting to trends,” it added.
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