Dr Lim Kim-Hwa, Chief Executive Officer and Head of Economics
Mr Tim Niklas Schoepp, Chief Operating Officer
Dr Lim Chee Han, Senior Analyst
Dr Negin Vaghefi, Senior Analyst
Ms Ong Wooi Leng, Senior Analyst
Penang Institute published three series of Penang Economic Indicators in 2015 as excerpts for Penang Monthly in Jan 2015, Apr 2015 and Jul 2015. At the time of writing, state level GDP data for 2014 and 2015 were unavailable by the Department of Statistics or the National Economic Planning Unit. Consequently, Penang Institute estimated Penang GDP growth rate for the years of 2014 and 2015, adjusted based on the projected national GDP growth rates announced by the Ministry of Finance.
When the estimated GDP figures were made available in the 11th Malaysia Plan in May 2015, GDP growth rates were then updated as can be seen in Figure 1 (or in the Penang Monthly issue July 2015, p.37).
As of 2014, Penang’s economy is based on 46% manufacturing and 48.2% services. Traditionally, Penang’s economy is highly dependent on the global economy. When global growth was strong between 2006 and 2008, Penang outperformed Malaysia in economic growth. However, when the financial crisis occurred at the end of 2008 and 2009, Penang’s economy contracted by 10.5% (vs. Malaysia’s -1.5%). This was due predominantly to global manufacturers drawing down their inventory which reduced manufacturing activities in Penang. When global manufacturers subsequently rebuilt their inventory in 2010, Penang’s GDP growth hit 10.4% (vs. Malaysia’s 7.4%).
Table 1 shows GDP growth rates based on 2010 constant prices from the Department of Statistics. Between 2011 and 2014, Penang’s GDP growth has averaged 5.73% compared to Malaysia’s growth of 5.38%. Between 2011 and 2013, Penang’s GDP growth has tracked closely that of Malaysia. However, when the US and European economies recovered in 2014, Penang’s economy grew by 8% and outperformed Malaysia’s growth by 2%.
Table 1: GDP growth at 2010 constant price
Source: Department of Statistics, Malaysia
As of today, state level GDP figures for 2015 and 2016 have yet to be released by the Department of Statistics. Nevertheless, Penang’s economy is likely to perform strongly due to two reasons:
- The US and European economies have continued their recovery since 2014 with the impact of Brexit is likely to be minimal. Therefore this will improve Malaysia’s and Penang’s exports outlook.
- Ringgit Malaysia has depreciated against US Dollar. Therefore, Malaysian exports will be more competitive globally. With an export orientated economy, Penang will benefit more than Malaysia.
As with all modern economies, Penang’s economy has continued to evolve – some businesses will shrink whilst others will expand. For example, B Braun, a Germany based medical device manufacturer, has made multi-billion Ringgit investments in Penang and is continuing with its expansion. On the other hand, the closure of Seagate’s disk-drive assembly plant in Penang is due to the drop in the global demand in disk-drives and technological changes in the recent years.
According to Statista, global shipments of hard disk drives have been declining from Q4 2010 to Q4 2015. The shipments dropped by approximately 31.5% worldwide from 167.5 million in Q4 2010 to 114.74 million in Q4 2015 (see Figure 2). This is due to the shift away from local hard disk drives to a centralised cloud server or cloud storage.
Figure 2: Global hard disk drive shipments from Q4 2010 to Q4 2015
Going forward, Penang’s economy is likely to perform similarly to 2015. Barring external shocks, Penang’s economy will benefit from stabilisation in the Chinese and global economies. Aided by a deep talent pool and a strong industrial cluster built over the past four decades, Penang’s economy will continue to adapt and grow.