The medium- and long-term trajectory for Malaysia still looks promising. This may allay some concerns that the economy has already peaked and entered the proverbial middle-income trap experienced by economies with GDP per capita of around $11,000. On the whole these regional comparisons suggest Malaysia’s economy still has the necessary momentum to outperform at least a number of its Asian peers. At the same time, Japan and South Korea continued to experience a soft growth patch, expanding by 0.53% and 2.61%, respectively. Malaysia’s other significant trade partner, India, became the fastest-growing economy, posting 7.4% in 2015.
Meanwhile, Malaysia’s number one trading partner in Asia, China, recorded 6.9% GDP expansion, a 25-year low for a country that is used to double-digit performance. Of similar nearly countries, only the Philippines grew faster, posting 5.8% growth, due to the country’s larger population, consumption-driven economy and lower per capita base. Malaysia’s neighbour Thailand expanded by 2.8% whilst Singapore posted a 2.1% increase that year. The overall global economy expanded at a modest 2.4% in 2015, characterised by lower commodity prices and diminished flows of trade and capital. This is in stark contrast to former emerging market growth stars such as Brazil and Russia, which posted output declines of 3.8% and 3.7%, respectively. Malaysia’s GDP expanded by 5% in 2015, compared to 6% in 2014, beating the initial forecast of 4.9% for the year.
While commodities make up 23% of Malaysia’s total exports, more than three-quarters of its exports are comprised of manufactured products.” Growth In Perspective “Its economy is well diversified, both in terms of economic structure and exports, as it is not over-exposed to any one industry or commodity. “Malaysia is able to weather current economic uncertainties and low commodity prices as its economic fundamentals are still strong,” Abdul Wahid Omar, a minister in the Prime Minister’s Department, told OBG. Though under some pressure because of heightened risks, it remains a notch above Standard & Poor’s rating for China, “AA-”, and several notches above Indonesia’s “BB+”. Structural strength is reflected in Malaysia’s “A-” sovereign credit rating. The strength of domestic demand was clear proof that diversification efforts undertaken during the last 10 years have put Malaysia in a better position to withstand both debt- and commodity-driven global downturns. The move seems to be paying off and has been endorsed by the IMF, though some argue it has transferred some cost pressures onto middle-class consumers, who remain the engine of growth in 2016. The traditionally dominant revenues from Malaysia’s state-owned energy firm, Petronas, are gradually being replaced by a bold move to introduce the goods and services tax (GST) and phase out fuel and food subsidies.
At the same time, the portion of state revenues coming from oil and gas is shifting dramatically, falling from 41.3% in 2009 to an expected 14.1% in 2017. With a flexible currency regime, ample liquidity in domestic banks and alternative sources of growth, the country was able to absorb the external shocks.Įven for resource-based sectors, this stress test may prove to be a blessing in disguise as a more efficient industry is expected to emerge once commodity markets stabilise. Yet economic data continued to suggest business as usual. In 2015 the local currency, the ringgit, saw the biggest sell-off since the 1997 Asian financial crisis. Resource rich and export-oriented, Malaysia’s economy has endured another major test in resilience, with a global slump in commodities and China’s slowdown reducing revenues from the key sectors of energy, palm oil and manufacturing.
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