Malaysia’s economic reform: Evolving perspective

Malaysia’s economy ended 2023 on a bearish note, with growth slowing and exports contracting sharply as the country grappled with a tough global economic environment and weak commodity prices.

Advance gross domestic product estimates for the fourth quarter and trade data for December both painted a gloomy portrait of the Malaysia, falling short of market expectations.

However, we are expecting a twist to the market sentiments in 2024 with Sultan Ibrahim Sultan Iskandar, 65, recently taking his oath as the 17th Yang di-Pertuan Agong in a ceremony in Kuala Lumpur on Wednesday, which was broadcast live on state television.

The Yang Di-Pertuan Agong will serve for five years as part of Malaysia’s unique system of rotational monarchy under which the country’s nine hereditary rulers take turns to rule. The monarch known to be vocal in business and current affairs, and is expected to become more influential in the country’s politics and economy.

The new king may encourage the government to focus more on attracting foreign direct investment, deregulation and infrastructure construction.

With Sultan Ibrahim on the throne Malaysia is in a period of relative calm. Prime Minister Anwar Ibrahim heads the “unity” government which includes his one-time rivals in Umno as well as representatives from the Borneo states of Sabah and Sarawak.

Political stability

this month Singapore and Malaysia reached a preliminary agreement to establish a Singapore-Johor special economic zone and improved connectivity across the border, one of the busiest in the world.

In 2023, Malaysian economy expanded by 3.3% in the third quarter. Growth was anchored by resilient domestic demand. Household spending remained supported by continued growth in employment and wages. Meanwhile, investment activity was underpinned by the progress of multi-year projects and capacity expansion by firms.

Exports remained soft amid prolonged weakness in external demand. This, however, was partially offset by the recovery in inbound tourism. On the supply side, the services, construction and agriculture sectors remained supportive of growth.

Going forward, growth will remain resilient despite external headwinds on account of firm domestic demand.

“Despite the challenging global environment, the Malaysian economy is projected to expand by around 4% in 2023 and 4% – 5% in 2024.

“Growth will continue to be driven by the expansion in domestic demand amid steady employment and income prospects, particularly in domestic-oriented sectors. This growth performance along with other favourable economic developments would provide support to the ringgit.” said Bank Negara Malaysia Governor Datuk Abdul Rasheed Ghaffour in a statement on 17 November.

A comeback in the Year of Dragon

Improvements in tourist arrivals and spending are expected to continue. Investment will be supported by further progress of multi-year infrastructure projects and the implementation of catalytic initiatives.

Measures under Budget 2024 will also provide additional impetus to economic activity. The growth outlook remains subject to downside risks stemming primarily from weaker- than-expected external demand as well as larger and more protracted declines in commodity production.

However, there are upside risk factors such as stronger-than-expected tourism activity, a stronger recovery from the E&E down cycle, and faster implementation of existing and new investment projects.

With the end of the biggest global inflationary surge in decades and a turn in the electronics cycle in sight, Malaysia’s economy looks set to stage a comeback in 2024 – the Year of the Dragon on the Chinese calendar.

Malaysia’s resilience is epitomized by its adeptness in confronting adversity, weathering unforeseen shocks, and perpetually adapting and advancing amidst disruptions and crises. With exemplary leadership at the helm in the year 2024, we find ourselves securely entrusted to capable hands navigating these dynamic circumstances.

Hema Subramaniam is a trained broadcast journalist who covered issues on Malaysia’s economy. She is also a former editor-in-chief of a news portal.