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Malaysia is the fourth-largest economy in Southeast Asia and the 39th-largest in the world as of 2021. It is a newly industrialised market economy that is relatively open despite being state-oriented. The Malaysian economy has been steadily growing over the past years.
The country saw its Gross domestic product (GDP) growth rising by 4.3% in 2019 after growing 4.8% in 2018. This was backed by several factors, including improvement in its labour market, sufficient spending on infrastructure, a pro-cyclical budget, and growing global demand for oil and gas, and electronics.
Unfortunately, the Covid-19 pandemic, coupled with declining government expenditure and lower public and private investments, halted Malaysia’s growth trend in 2020 and caused the economy to contract. The impact of the pandemic pushed the economy into negative territory, recording a 5.6% contraction in 2020.
In 2021, GDP growth rebounded to 3.1% and a year later GDP rose to a 22-year record high of 8.7%.
However, for 2023 the International Monetary Fund (IMF) cut its projection to 4.4% from the previous prediction of 4.7%.
Malaysia GDP Annual Growth Rate (in %)
Malaysia’s population of over 33 million is significantly lower than its neighbouring ASEAN countries such as Indonesia, the Philippines, Vietnam, and Thailand. However, the country’s labour productivity is higher than these nations due to knowledge-based industries and its digital economy and the use of cutting-edge technology for manufacturing.
Malaysian people enjoy an affluent lifestyle only rivalled by Singapore and Brunei. The government is aiming to raise income per capita to achieve a high–income country status.
In 2021, the unemployment rate rose marginally to 4.6% from 4.5% in 2020, led by the reopening of the nation’s economy. In 2022, it averaged lower at 3.8%.
Malaysia Unemployment Rate (in %)
Currency and Central Bank
Malaysia’s official currency is the Malaysian ringgit or RM, which is divided into 100 sen. Prior to August 1975, it was called the Malaysian dollar and cents in English, until the official names were adopted.
The Central Bank of Malaysia or Bank Negara Malaysia (BNM) in Malay serves as the country’s central bank. It was founded on January 26, 1959, as Central Bank of Malaya or Bank Negara Tanah Melayu.
The central bank is tasked with issuing currency, formulating monetary policy, regulating Malaysia’s financial institutions and credit system. To tame inflation, BNM has increased the overnight policy rate (OPR) four times in 2022 to 2.75% and analyst expect further increases in 2023.
The central bank in November 2022 said headline inflation is likely to have peaked, with a annual inflation rate of 4.0% in November and October 2022. As per the IMF, Malaysia’s inflation is projected to reach 2.8% in 2023.
Malaysia Inflation (in %)
Industry and Trade
Malaysia’s economy has long transitioned from an agricultural-centric phase in the 1960s into an industrial and services-driven one.
Healthcare services, transport, distributive trade, and tourism are the main drivers of its service sector. It accounts for 51.55% of the country’s GDP in 2021 and employed 63% of its labour force.
Meanwhile, Malaysia’s industrial sector makes up over 37% of the GDP and provides 26.8% of the workforce. The country is considered one of the largest global exporters of semiconductor devices, electrical goods, and appliances.
Agriculture employs 10.5% of Malaysia’s labour force. The country is still one of the top producers of palm oil, tropical wood, and rubber. However, its agricultural sector only contributes 7.1% of the GDP (as of 2021).
Malaysia currently ranks 24th in total exports globally, with integrated circuits, refined petroleum, petroleum gas, semiconductor devices, and palm oil as its main export products. Its top export partners are Singapore, China, the US, Hong Kong, and Japan.
Meanwhile, the country is ranked 25th in terms of total imports and its top import products are integrated circuits, refined petroleum, crude petroleum, broadcasting equipment, and coal briquettes. China, Singapore, Japan, the US, and Taiwan are its main import partners.
Malaysia Economy: Balance of Trade
Stock Exchanges and Capital Markets
Previously known as the Kuala Lumpur Stock Exchange, Bursa Malaysia is the sole stock exchange of Malaysia. It offers a wide range of products, including equities, derivatives, and exchange-traded funds (ETFs).
In 2006, Bursa Malaysia partnered with FTSE Group to improve its previous Kuala Lumpur Composite Index (KLCI) and develop its current major index, the FTSE Bursa Malaysia KLCI, which is made up of the 30 largest listed companies based on market capitalisation.
Bond Market
Malaysia has a highly developed bond market and is the third-largest bond market in Asia, behind Japan and South Korea, in terms of bonds outstanding.
Over 69% of the bonds outstanding comprise sovereign bonds, including quasi-government issued debt, while the remaining percentage is made up of corporate bonds.
The government securities issued in the country are Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII), Malaysian Treasury Bills (MTB), and Malaysian Islamic Treasury Bills (MITB).
Local companies are also able to secure financing through the bond market by issuing bonds, medium-term notes, and commercial papers.
Real Estate Market
According to Mordor Intelligence, Malaysia’s real estate market is expected to register a CAGR of more than 4.5% from 2018 to 2027.
The Covid-19 pandemic has dampened demand, further pressing on house prices. While between 2010 to 2019 an annual price growth of 7.5% was registered, house prices fell to 1.3% Y-o-Y in Q1 2021.
However, the Malaysia Property Market First Half 2022 report saw over 188,000 transactions recorded worth RM84.40 billion, marking an increase of more than 30% in volume and value compared to the frist half of 2021. According to the report, all property sectors registered year-on-year growth.
Malaysia Housing Index (in %)
Source of charts: tradingeconomics.com
