BMI View: We expect road freight will continue to dominate freight in Malaysia , although rail will benefit from increasing inter-regional trade and improving infrastructure and see the strongest growth over the medium term. Meanwhile, the highly developed air freight sector, profiting from Malaysia's role as a transhipment hub , will see little growth going forwards, a s it is already mature and well established. Overall, the sector will benefit from the country's c ontinued economic growth and lower oil prices , which will support domestic consumer demand and domestic production . However , we highlight that opportunities for freight will be smaller than previously, as economic growth is starting to slow.
Between 2015 and 2019, we expect Malaysia's real GDP growth to average an annual 4.1%. Although this is slower than average annual growth of 5.6% over the previous five years, we still view Malaysia's economy as a strong regional player with solid fundamentals. Continued economic growth is boosting consumer demand for imported goods and fostering growth in the domestic manufacturing and industrial sectors, which is increasing Malaysia's export offerings. In addition, Malaysia benefits from its position as a regional transhipment hub and a large number of Free Trade Agreements (FTAs), which means that investors in Malaysia stand to benefit from cheaper trade costs due to the association with well-connected global routes and bilateral trade ties. All of these factors support our positive outlook over the next five years for Malaysia's various freight sectors. However, in spite of this comparatively positive outlook we highlight two factors contributing to a less upbeat outlook over the medium term. In comparison to previous years, economic growth is slowing, which will result in fewer opportunities for growth across all the freight modes.
Over 2015, we expect the road freight sector to see the strongest performance, as consumer demand for luxury non essentials continues to drive growth. We forecast total tonnage to rise by 3.47% on 2014 levels, to reach over 295mn tonnes. Rail freight will be the next strongest performer, as domestic demand for steel and construction materials, improving international rail connectivity, and strong trade flows between Singapore, Thailand and Malaysia all serve to support heightened levels of rail freight. This is reflected in our forecast for rail freight tonnage to reach 14mn tonnes in 2015, up by 3.00% on 2014 levels.
Meanwhile, air freight will see the smallest growth rate, of just 1.53% year-on-year (y-o-y), as it continues to be undercut by the improving rail networks in Peninsular Malaysia. The sector is already so well established as a key freight mode for regional transhipments that there is little room for further development. However, it benefits from rising domestic and global demand for consumer electronics, and is well positioned as a key player within the global electronics distribution network. Moreover, with limited transport infrastructure in many areas of the country, the air freight sector will continue to represent a vital means of transport for supply chains in Eastern Malaysia over the medium term, and we therefore anticipate subdued but steady 1.5% average annual growth through to 2019.
Over the medium term, between 2015 and 2019, we expect that rail freight will see the strongest growth, as the improving national and trans-regional connectivity, in conjunction with rising agricultural exports and double digit agricultural import growth result in continued strengthening of demand for rail freight services. This is reflected in our forecast for rail freight tonnage to reach 5.12% annual growth by 2019 (representing 16.8mn tonnes). However, although growing at a slower rate and hampered by severe urban congestion, high accident rates and poorly maintained roads in many regions, we believe that road freight will continue to dominate the Malaysian freight sector, as improving employment and increasing incomes support demand for consumer goods. We therefore anticipate that the total volume of road freight will reach 339.1mn tonnes by 2019.
Key BMI Forecasts:
We forecast total road freight volumes will rise by 3.47% y-o-y over 2015 to reach 296mn tonnes.
We forecast total rail freight volumes will rise by 3.00% y-o-y over 2015 to reach 14mn tonnes.
We forecast total air freight volumes will rise by 1.53% y-o-y over 2015 to reach 925,000 tonnes.
We forecast total imports to reach USD242.7bn in 2015.
We forecast total exports to reach USD265.3bn in 2015
Malaysia's top trade partners will be China, Singapore, Japan, Thailand and the US.