Malaysia Economic Situation

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Oscar Arribas
6:08pm Friday 21 November

Malaysia Economic Situation

Malaysia, a strong performer in the early and mid-1990s, was hit hard by the regional economic turmoil in 1997 and 1998. During the crisis its economy contracted by 7.4 percent while the Ringgit dropped by over 40 percent before being temporarily pegged to the US dollar. The economy has since recovered strongly, particularly in 1999 and 2000 on the back of increased government spending and a robust export sector.  Since 2001 annual growth has averaged 5.9 percent (2007: 6.3 percent). Private consumption and investment, particularly in the services sector, have also emerged as key drivers of economic growth.

As of November 2008, the global financial crisis has not had a significant negative impact on Malaysia's economy.  Though the country’s stock exchange has endured a bad year, latest figures reveal that growth, trade and investment have held up well. However, a more challenging environment – of flat external demand, lower commodity prices and increased competition for FDI inflows – is expected in 2009.  As a result the Government has revised downwards its GDP growth projection to 3.5 percent (from 5.4 percent). 

In the last quarter of 2008, a series of measures to cushion the impact of the current global economic downturn were announced, including a deposit guarantee scheme, capital market support and a stimulus package. The Government has also signalled its ongoing commitment to an open economy and improving Malaysia’s ‘competitiveness and attractiveness’ for foreign investors as part of its policy response. However, there is a sense that more may be required, particularly to stimulate and incentivise private sector investment. 

Malaysia’s overarching economic objective is to achieve developed country status by the year 2020. To realise this goal, however, the economy will need to grow by over 7 percent per annum.  The further development of the services sector, already on a strong growth trajectory and accounting for over half of economic activity in Malaysia, has been identified as a key pillar in realising this ambition and moving the economy up the value chain.  Sectors such as Islamic finance, ICT, tourism, education and training, biotechnology, multimedia and professional services have been singled out as areas of focus in Malaysia's strategic plans (e.g. the Ninth Malaysian Plan and Third Industrial Master Plan). 

In addition to services, the Government’s economic blueprints focus on addressing income distribution, developing the agriculture sector and improving social services, while also retaining a focus on affirmative action policies for native Malays.

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Last updated: 04 December 2008