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Kuala Lumpur: Regional Strategic Forecast

Economist Intelligence Corporate Network recently concluded the first session of our bi-annual Regional Strategic forecast, delivered by EIU’s Chief Economist, Simon Baptist in both Singapore and Kuala Lumpur. We were joined by an excellent panel in Kuala Lumpur:

  • Tricia Yeoh, (Chief Executive Officer at IDEAS The Institute for Democracy and Economic Affairs)
  • Chin-Huat Wong, (Professor and Deputy Head (Strategy), SDSN Asia Headquarters at Sunway University)
  • Ibrahim Suffian (Co-Founder and Director of Programs at Merdeka Center)
  • Sumana Rajarethnam (Director for South-East Asia at EICN)

For those who missed it, here is our Regional Strategic Forecast:

  • Manoeuvrings by Malaysia’s King Abdullah have led to the formation of a unity government led by Anwar Ibrahim, the leader of the multicultural Pakatan Harapan (PH) coalition. His government will be supported by pro-Malay political parties, circumscribing his ability to unpick Malaysia’s panoply of ethnic preferences for the majority Malays. 
  • The Pakatan Harapan (PH) coalition leads a unity government including smaller political parties. EIU believes that a stability pact will hold in 2023-24 as component parties remain reluctant to work with an opposition group dominated by an Islamist party, which has more parliamentary seats than any other single political party.
  • In a recent poll by the Merdeka Centre, over two-thirds of Malaysian voters gave 10th prime minister Anwar Ibrahim positive ratings in a survey carried out in the second month following the 15th general election.
  • It should be noted that the ratings were attained on the support of 73% ethnic Chinese, 91% ethnic Indian, about 70% of Sabah and Sarawak bumiputera, and 60% Malay voters. Only 20% of voters report dissatisfaction with his performance at that moment in time.
  • It doesn’t look like much will change in the approach to fiscal outlay until after the state elections.
  • The decision to slash constituency funds recognises the level of debt, but also takes away a business as usual option for parliamentarians.
  • The government will prioritise the implementation of economic measures to cushion the impact of the rising cost of living.

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We also discussed some regional themes

  • China – observations that the bounce back from zero-covid is faster than expected, with cases peaking earlier than expected. However, the impact of China’s impending growth rebound will be felt unevenly across the region. Domestic services and entertainment industries will certainly benefit, but at the same time this will cut back on spending for goods that were in demand during the pandemic, like electronics and household furniture. 
  • India – Quickly summarised as a country with mouth-watering opportunities, accompanied by eye-watering challenges. A youthful population, rising urbanisation and consumption carries economic heft, but the business environment has not kept up. Weakness in the finance sector, requiring more “innovative” capital as well as platforming, will gear the country towards greater growth. As a supply hub alternative, India’s production capabilities remain 10-15 years behind China, with problems in quality control. 
  • Emerging Asia – Strong job recovery has spurred consumption, but wages remained stagnant. A firm recovery in retail sales has been generally shared across the region, with consumption preferences shifting from discretionary goods to experiential spending suggesting some frontier economies like Vietnam are well underway on their transition towards a developing economy. 

On to the panel discussion, where we discussed some individual economies

  • Terminal interest rates are coming up higher than expected, and the duration between peaks and throughs is longer now. Expect inflation to last a bit longer, and watch out for countries whose central banks have hiked slowly – they would be slow to unwind and lower rates as well.
  • Supply chains are getting shorter, with more companies going local, and at a higher cost. “Hyper-localisation” allows companies to develop more in-depth knowledge of their markets and react faster to their business environments, whilst also more accurately identifying market gaps and opportunities.
  • Competition for top talent will ramp up. Working location is becoming less relevant – advances in communication technology and remote working also mean top talents have more options. Productivity gains from technology cannot be unlocked without people holding the required skill set, and companies should strategise for better staff retention, HR processes and managing a globally distributed workforce.