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Malaysian Economy
Malaysia has a multi-sector economy that is relatively open and state-oriented. Since 1970, Malaysia has transformed itself from a raw material producer into an industrial market. It is one of three countries that control the Strait of Malacca. Thus, international trade plays a substantial role in the Malaysian economy.
The economy of Malaysia is the third-largest in Southeast Asia and the 37th-largest in the world. In 2018, the GDP of Malaysia recorded a 4.6% growth, reaching $347 billion. The main driver of Malaysian economic growth is domestic demand. Private consumption accounts for 53% of Malaysian GDP. The IMF predicts that the Malaysian economy will expand between 4.6 to 4.8% annually for the next five years. By 2023, the GDP of Malaysia should reach around $500 billion.
Malaysian Economy: Upper-middle income country
According to World Bank data, Malaysia is categorised as an upper-middle income country. In a 15-year span, Malaysia has doubled its GDP per capita (PPP) from $15,131 in 2004, to $30,815 in 2018. It is the third highest amongst ASEAN countries, after its smaller neighbours, Singapore and Brunei Darussalam.
The total population of Malaysia numbered 32.4 million at the end of 2018, representing a 1.4% increase from the previous year.
The unemployment rate in Malaysia is 3.2%. This number is predicted to drop to 3% in 2019, and stagnate around 2.8% for the following four years.
Currency and central bank
The official currency of Malaysia is the Malaysian ringgit, also known as the Malaysian dollar. It is issued by Malaysia’s central bank, Bank Negara Malaysia (BNM). The ringgit was pegged to the U.S. dollar from 1998 to 2005 due to the high volatility of the currency during the Asian financial crisis. BNM removed the peg in 2005 and since then ringgit has been back to free float exchange rate. However, the ringgit is still not traded internationally to the current date.
Headquartered in the capital of Kuala Lumpur, BNM’s main roles include issuing currency, and regulating financial institutions, credit systems and monetary policy. It also targets interest rates and imposes the Overnight Policy Rate (OPR) as an instrument. The OPR is set at the current interbank overnight rate of 2.70%.
Malaysia: Lowest Inflation Rate in Asia
Malaysia recorded the lowest inflation rate based on average consumer price in nine years, a 1% rate. This is also the lowest in Asia. Meanwhile, Malaysia’s inflation rate at the end of consumer period 2018 is 3%.
Industry and trade
The services sector contributes to more than 50% of Malaysia’s GDP, followed by manufacturing (36.4%) and agriculture (8.4%). Main industries in Malaysia include electronics, oleochemicals, automotive, wood pulp, petroleum and petrochemicals.
Malaysia is the second-largest exporter of palm oil globally, and one of the biggest exporters of timber and natural rubber. Additionally, Malaysia has an oil and gas industry, with state-owned oil company Petronas contributing around 20 to 30% of revenue to the Malaysian government. The country is also the world’s largest Islamic banking and financial centre. Maybank, CIMB Group Holding, and Public Bank Berhard are the three leading banks in Malaysia.
Malaysian Economy: Trade and Competitiveness
In 2018, Malaysia recorded a trade surplus of $30 billion, with total exports of $249.5 billion and total imports of $219.5 billion. Malaysia’s main trading partners are Singapore, China, the U.S., Japan and Thailand.
FDI inflows to Malaysia in 2018 reached over $8 billion. The investment came primarily from China, Switzerland, Singapore, the Netherlands and Germany. The services and manufacturing sectors are the main recipients of foreign investment.
In 2019, Malaysia was ranked the 15th on the World Bank ease of doing business index.
Stock exchanges and capital markets
Malaysia’s stock exchange is Bursa Malaysia, located in Kuala Lumpur. By March 2019, Bursa Malaysia had a total market cap of $434.75 billion with 918 listed companies. The companies are listed under either the Main Market or the ACE Market.
Bursa Malaysia uses the Sectorial Index Series to track the performance of listed companies on the Main Market in the same sector classification. The exchange also cooperates with FTSE to launch market data under FTSE Bursa Malaysia KLCI Index, FTSE Bursa Malaysia Mid 70 Index, FTSE Bursa Malaysia Top 100 Index, FTSE Bursa Malaysia Hijrah Shariah Index, and FTSE Bursa Malaysia Asian Palm Oil Plantation Index.
The FTSE Bursa Malaysia KLCI (FBM KLCI) is the most important index. It is composed of the 30 largest companies on the stock exchange by market capitalisation.
Malaysian Economy: Investment Regulation
Malaysia’s government imposes a foreign ownership limit (FOL) on shares in Malaysian companies. The ceiling for ownership in domestic investment banks and Islamic banks is 70%, local insurance companies is 49%, and other Malaysian companies is 30%. However, the FOL can be exceeded for companies that produce exported goods.
Foreign ownership is also limited in media companies, water and electricity distribution companies, the healthcare industry, the automobile industry, and leasing companies.
