After the turbulence of a pandemic, Malaysia has clawed its way out of the economic recession. continuing its recovery momentum. It’s been confirmed that the World Bank has raised its 2022 economic growth forecast for Malaysia from 5.5% to 6.4%. The growth is expected to result from borders opening after the lockdown and the continuation of multiple investment projects.
Based on this positive trajectory, the Monetary Policy Committee (MPC) of Bank Negara Malaysia has announced a 0.25-point increase (to a total of 2.75%) in the Overnight Policy Rate (OPR). In turn, the ceiling and floor rates of the OPR’s corridor are experiencing an increase of 3% and 2.5%, respectively.
For the past few months, the economic activity in Malaysia has strengthened, despite challenges like inflation. Several factors have driven this growth.
Contribution of Key Economic Sectors
The lockdown was a tough blow to many industries. While some companies could sell their goods online and still meet their customers’ demands, there was a shift in customer behaviour.
As the COVID-19 cases lowered, the restrictions were slowly lifted. The market is now as crowded as ever, malls are full of shoppers, and roads are bustling with Malaysians going on about their days. This situation resulted in an 18.3% growth in private consumption—a stark difference from the 5.5% rate in Q1 2021. To summarize, the economy flourishes, and it’s a strong contributor to Malaysia’s economic growth.
Meanwhile, the lockdown also restricted tourists from visiting Malaysia. Although it was for good reasons, the economy suffered. Tourism was and has always been one of the largest industries in Malaysia. In 2019 alone, the tourism industry contributed 6.7% to Malaysia’s gross domestic product (GDP). Like two cogs in a giant gear, both tourism and economic activities go hand in hand. As more stores opened up, tourists began to plan their trips to Malaysia.
However, despite its steady growth, the tourism sector has yet to recover fully. In 2019, Malaysia saw an all-time high in tourism revenues, hitting RM86.1 billion. But in 2021, the total value of tourism receipts was approximately RM240 million.
In addition, the manufacturing and services industries continue to grow, which saw a 12.1% increase in the Industrial Production Index (IPI) in June 2022. During the same time, the sales in the manufacturing sectors, specifically the electrical and electronic equipment subsector, rose by 23.4% to more than RM153 billion.
Of course, new policies and innovations affect Malaysia’s economic growth. One example is the expansionary fiscal policy through Budget 2022. This policy includes tax cuts and increased government spending on infrastructure. While the expansionary fiscal policy has its drawbacks, notably reduced government revenue, it proves to be a worthy strategy as the GPP increases steadily in Q2 2022.
To boost the economy further, the government released economic stimulus packages in 2021. With over RM530 billion allocated by the government, the policy successfully assisted over 20 million Malaysians and 2 million businesses. The public was encouraged to open an account at any licensed bank and receive direct cash assistance. Thus, the economy survived the COVID-19 pandemic, and Malaysians were able to begin their post-COVID lives.
Recently, when petrol prices soared worldwide, the Malaysian government offered subsidies that reprieved the effects of inflation. The RON95 petrol and diesel were subsidized. The government helped pay for your fuel; RM1.65/litre for RON95 and RM1.85/litre for diesel. At the time of writing, the subsidy is still ongoing. Although there have been discussions over when the support will end, so far the government still keeps mum.
Overseas and Domestic Demand
As briefly mentioned before, domestic private consumption has doubled in a year. This is tied to the decreased unemployment in June 2022, reaching 3.8%, with a total of 630,000 unemployed Malaysians. The government had a role in opening new job opportunities, thanks to the RM4.8 billion JaminKerja initiative. In terms of monthly income, Malaysians received increased salaries and benefits by 5.2% in the manufacturing industry and 9.3% in the services industry.
Everything has been going well in terms of foreign direct investment (FDI). The projection remains positive, with a total of RM17.3 billion worth of investment. The manufacturing, finance, and insurance sectors, in particular, became the star commodities that have attracted many investors from the United States and Singapore.
Malaysia’s economic growth is a testament that anything is possible, even in dire situations. However, 2023 is poised to be a challenging year with global headwinds caused by the tension between Ukraine and Russia, the rising price of oil, and supply chain disruptions. Nevertheless, Malaysia has bounced back and is ready to face the new year with a roaring spirit.