• The external macro environment, in particular the crude oil price, the timing on the start of the rise in US interest rates and its ensuing impact on financial capital flows, will introduce higher volatility to Malaysia’s economy, including the risk of twin deficits. Nevertheless, Penang is expected to continue to contribute trade surpluses in 2015 due to the weakening of the Ringgit, and the state budget is expected to remain in surplus.
• At the same time, Malaysia’s domestic environment will become more challenging given the introduction of the GST from April 1, 2015 and the sensitivity of Malaysian households to any interest rate hike due to their high debt levels.
• The combined effects are likely to dampen the housing market, thus giving some first time buyers opportunities to climb on the property ladder. However, higher building costs will insulate prices. Furthermore, limited supply of properties within the George Town Unesco World Heritage Site is likely to provide support to prices.
• Penang’s manufacturing, especially the electrical and electronics (E&E) sector, is likely to benefit from the US recovery. With investments in the services sector such as the Penang International Technology Park, it will mean higher degree of convergence between the manufacturing and services sectors, thus enhancing the cluster effect in Penang.
• Penang’s tourism and medical tourism sectors are well placed to continue to benefit from the rising middle income class in Asia as well as an ageing population. The rejuvenation and addition of several tourism attractions will continue to reinvigorate Penang’s appeal.
• FDI will continue to push Penang’s economy ahead. Penang has received about 13% of Malaysia’s total investment between 2008 and 2013. Nevertheless, as Penang’s economy matures, domestically driven economic activities will become increasingly important economic drivers in the years ahead.
• Employment growth is likely to remain stable, with labour shortages continuing to be an issue.
• Plans are in progress to improve Penang’s connectivity. The implementation of the Penang Master Transport Plan through the Request for Proposal of the RM27bil project is underway; DHL is investing additionally in Penang’s airport, and double-tracking of the rail service to Ipoh and KL from Butterworth is scheduled for completion in 2015.
• The introduction of the Asean Economic Community from December 31, 2015 offers Penang opportunities to cement its role as an intelligent and international city, and with better connectivity, poising it as a hub in the region.
