Fall in fixed investments may hold back Malaysia, say economists

 

The Statistics Department says Malaysia’s gross fixed capital formation dropped by 11.6% in the third quarter of the year.

PETALING JAYA: Economists have expressed concern over the sharp decline in Malaysia’s gross fixed capital formation, or fixed investments, which they say is a key indicator of the economy’s long-term health.

Geoffrey Williams of HELP University said the reduction in fixed investments affects the economy’s potential growth and could deter the nation’s capacity to transition to a more advanced economy with the fourth industrial revolution.

He told FMT that the decline also damages Malaysia’s competitiveness since other countries in Asia are not experiencing the same phenomenon.

“Gross fixed capital formation refers to physical investment in machinery, vehicles and equipment used by companies to run their businesses. Fixed investment is an engine of growth and the main way to introduce new technology and innovation.

Geoffrey Williams.

“Since other Asian countries are not affected by this decline, Malaysia may suffer a loss in the share of international markets. This will hold back the creation of new employment and is very difficult to reverse,” he warned.

On Friday, the Statistics Department said Malaysia’s gross fixed capital formation dropped by 11.6% in the third quarter of the year, although the figure was an improvement from the 28.9% decrease in the second quarter.

The Chief Statistician, Mohd Uzir Mahidin, expressed concern over how the drop would impact the country’s future output since the downward trend began in the first quarter of 2019.

Another economist, Paolo Casadio, said fixed investments are a good measurement of the fundamental strength of the Malaysian economy but are very sensitive to economic and political uncertainty.

Paolo Casadio.

“Fixed investments are big costs for companies and the payback happens only over several years, so if firms are uncertain about the future, they will cut back on fixed investments today.

“As statistics show, we have seven successive quarters of negative fixed investment, so this is a problem that was developing before the Covid-19 lockdown,” he told FMT.

He said the uncertainty on demand was what deterred companies from investing, adding that the simplest way to address this was by directly supporting domestic consumption.

Hui Hon Chung.

Hui Hon Chung, also from HELP University, said Malaysia needed policies that support more important types of investments, such as innovative start-ups that have higher potential for growth and job creation.

He told FMT that creating a friendly investment environment and building confidence in the nation’s economic stability would be two essential ways to attract foreign investment.

“Recently, not only has our FDI (foreign direct investment) been weak, but the business confidence index has also been on a downtrend since 2018,” he said. - FMT