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The impact of the coronavirus lockdown caused Malaysia’s economy to contract in Q2 2020. With -17.1% compared to 4.9% growth in the second quarter of 2019, it marks a steep drop-off, also being Malaysia’s worst performance since tracking GDP numbers. However, Malaysia’s central bank still expects the 2020 GDP to lie between 0.5% growth and 2% decline. This reflects that the country has established itself as one of the most significant economies in the region. So, let’s take a closer look at Malaysia.
Malaysia Economy Overview
The Southeast Asian country of Malaysia consists of 30 million people, and the economy is ranked third among nations in South East Asia, behind Indonesia and Thailand, and is the 35th largest worldwide.
It has some distinctive strengths, with labour productivity notably higher than such neighbouring countries as Thailand, Indonesia, the Philippines and Vietnam. Malaysia is considered particularly adept in high-tech and digital industries, as citizens in the country enjoy a more affluent lifestyle than is common in comparable nations.
The internal organisation of Malaysia is particularly impressive, with a low national income tax contributing to personal wealth. Meanwhile, food and fuel prices are affordable, with the state also providing a subsidised single-payer public health care system, alongside a comprehensive social welfare state.
In 2019, the GDP was at 4.3%, with Covid-19 on the table, the IMF expects a decline of 3.8% this year, according to the June forecast.
Demographics
Malaysia population is distributed very uneven. Nearly 80% of the country’s citizens are concentrated in Peninsular Malaysia, which constitutes less than 40% of the surface area of the country. Unemployment has been relatively low in Malaysia in recent years, and was trimmed to 3.2% in January 2020. However, due to Covid-19 numbers a rising and reached 4.9% in June 2020, after a record high of 5.3% in May, according to Statistics Malaysia.
Currency and Central Bank
The Central Bank of Malaysia was established in 1959, and carries as its main purpose to issue currency, while also acting as a banker and advisor to the government of the nation. It is headquartered in Kuala Lumpur; the Federal capital of the nation. The Central Bank of Malaysia has made efforts to aid social and financial inclusion, and is consequently a member of the Alliance for Financial Inclusion.
Powers under which the central bank operates where updated by the Central Bank of Malaysia Act 2009. The Malaysian Ringgit was established in 1967, and remains the currency of the country. The Ringgit is not a powerful currency, but it is relatively valuable compared to some, with four Malaysian Ringgit being equivalent to approx. one US dollar (Sept. 2020).
The government and the central bank of Malaysia has done a steady job in controlling inflation in recent years. On the backdrop of the coronavirus pandemic, core inflation was at 1.3% (July 2020). The IMF forecasts an inflation rate of 0.1% in 2020.
Following the coronavirus, the central bank of Malaysia cut interest rates, with the intention of providing a “more accommodative monetary environment to support the projected improvement in economic growth amid price stability”. Malaysia could face further challenges in the ensuing financial climate, particularly due to the volatility of the oil market.
Industry and Trade
Malaysia has an esteemed reputation in the electrical and electronics industry, with this sector responsible for nearly one-third of the country’s exports. And over one-quarter of employed Malaysians also work in this niche. Malaysia has become particularly skilled in manufacturing parts for mobile devices and storage devices, and has a vibrant electronic components industry.
There is no other sector that is as established as this, but Malaysia also relies on both the automotive and construction industries. Malaysia houses nearly 30 vehicle producers, and the automotive industry has become rather important in the country.
Malaysia has a vibrant import and export market and registered a trade surplus of $33 Billion USD in 2019.
As would be expected, the largest trading partner of Malaysia is China. The two-way trading volume between the two countries has long since exceeded $100 billion USD, with Malaysia being the third-largest trade partner for China in Asia. Malaysia’s second largest trading partner is Singapore, with Malaysia being Singapore’s biggest trading partner.
The country also trades heavily with Japan, while it has also establish itself as an important trading partner for the United States, mostly with Malaysia exporting to the US.
Surveys and Rankings
In the Global Competitiveness Report, Malaysia has scored quite well in recent years, but also slipped a couple of places in the most recent edition of the report. Malaysia fell from 25th in 2018 to 17th in 2019. But the authors of the report still praised the country, and it remains one of the most competitive in Asia.
Even more encouraging for Malaysia was the World Bank Ease of Doing Business report, which placed the country in a competitive 12. position amount 190 global economies. This was an improvement on the 15th spot that the country had achieved in the previous year. A joined-up and collaborative relationship between the private and public sector was particularly cited.
The Malaysia economy also scores decently in the Heritage Foundation Index of Economic Freedom, being around 24th in the most recent index. Its overall score is well above the regional and world averages.
Stock Exchanges and Capital Markets
Bursa Malaysia is the stock exchange of Malaysia. As with most of the economic architecture of the country it is based in Kuala Lumpur. The capital market in Malaysia is particularly significant, with the Securities Commission Malaysia estimating it at RM$4.5 trillion (US$1.1 trillion).
The FTSE Bursa Malaysia KLCI Index comprises the largest 30 companies by full market capitalisation on Bursa Malaysia’s Main Board. This index replaced the Bursa Malaysia KLCI Index when it was launched in 2009. Foreign investment in Malaysia is growing, and its stock exchange is one of the busiest in the Southeast Asian region.
There are nine Malaysia companies listed in the Forbes Global 2000, with all of the businesses involved in major industries, such as banking, oil and gas, and telecommunication. The largest is Maybank, with Tenaga Nasional, Public Bank Berhad, CIMB Group Holdings, Petronas Chemicals, RHB Bank, Hong Leong Financial Group, Axiata Group, and AmBank also among the top ten.
Bond market
The bond market is Malaysia is highly developed, and one of the most dynamic in its native region. It is the largest local currency bond market in the Association of Southeast Asian Nations, worth over $600 billion. Corporate bonds are particularly popular in the market, although government bonds are traded regularly as well.
Malaysia’s bond market is highly liberalised, with both domestic and foreign investors active in both the exchange and over-the-counter markets. In Malaysia, nearly all securities are transferred electronically via Bank Negara Malaysia (BNM)’s Real-Time Electronic Transfer of Funds and Securities system.
As the Malaysian bond market has grown rapidly, recent years have seen foreign capital flow into Malaysia prodigiously. The Malaysia 10-year Government Bond has a 3.555% yield. Due to the coronavirus crisis Malaysia has lowered its interest rates to 1.75% in July 2020.
S&P and Fitch’s credit rating for Malaysia stands at A- with negative outlook, last updated in July respectively April.
Real Estate Market
Malaysia is one of the most foreign-friendly countries in Southeast Asia for real estate investors. The only major barrier to entry for foreign investors is that more affordable properties are reserved for native Malaysians. Property is affordable in the country, as Malaysia’s average house price in 2019 stood at about US$ 102,000.
However, average house prices have risen continuously over the last 30 years, almost 5.6 times. By comparison, real GDP per capita has only increased 2.8 times.
