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ASSIGNMENT
ON
FUNDAMENTALS OF ECONOMICS (550)
“ECONOMIC PROFILE OF MALAYSIA”
Submitted to:
Dr. Ahmed Tazmeen
Assistant Professor
Department of Economics
North South University
Submitted by:
Rocksinda Farhana
ID# 1612873085
6th Batch, MPPG
North South University
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Economic Profile of Malaysia
Introduction:
Malaysia is a Southeast Asian country occupying parts of the Malay Peninsula and the island of
Borneo. It's known for its beaches, rainforests and mix of Malay, Chinese, Indian and European
cultural influences. The capital, Kuala Lumpur, is home to colonial buildings, busy shopping
districts such as Bukit Bintang and skyscrapers such as the iconic, 451m-tall Petronas Twin
Towers. Malaysia’s vibrant economy is considered one of the strongest in South East Asia.
GDP, Economic Growth and Business Cycle:
Malaysia has an enviable track record of economic resilience. Sound and proactive
macroeconomic policies are boasting up its economic growth. The country has sustained rapid
average growth of over 6.4% per year since 1970. In recent years, growth has moderated
somewhat in the face of severe global headwinds but has remained robust. Figure 1 shows that
over the 2007-2016 periods, real GDP grew at an average rate of 5.0%, even after taking into
account the recession in 2009. Compare to 2015 (5%), GDP growth rate was 4.2% per year in
2016, the lowest since global recession.
Low economic growth in 2016 was because the global economic landscape. International
financial markets were also subjected to heightened uncertainty with significant reversal of
capital flows from emerging economies. This was driven by the unexpected political
developments in the advanced economies, such as the UK and the US, and the macroeconomic
policies adopted by these economies. Domestically, the economy continued to face headwinds
from the higher cost of living amid soft employment conditions. Concurrently, business and
consumer sentiments were affected by a confluence of global and domestic factors, including the
heightened volatility in financial markets and the significant underperformance of the ringgit.
Figure 2 shows that the economy turns back in the first quarter of 2017. 1st quarter 2017 shows
the higher GDP growth at 5.6%. Predicted economic growth in 2017 is 4.5. Private sector
activity was higher and remained as the main driver of growth. Growth was further lifted by
higher exports, as increased demand for manufactured products led to a strong growth in real
exports 9.8%; (4Q 2016: 2.2%).
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Economic Profile of Malaysia
Unemployment, Types, and Indicators:
Malaysia’s unemployment is relatively low and stable at around 3% over the year, which means
the population is experiencing close to full employment. Figure (5) shows that from the year
2007 to 2017, the country reached its all time high unemployment rate of 4.1% in 2009 and
lowest in 2014, with a rate of 2.85%.
Figure (6) the unemployment rate in Malaysia fell slightly to 3.4 percent in March of 2017 from
3.5 percent in the same month the previous year. The chart shows that 1st quarter in 1917 has
slightly higher labor force participation, at 67.7% of the working age population (4Q 2016:
67.6%). As such, the unemployment rate remained unchanged at 3.5% of the labor force (4Q
2016: 3.5%).
Despite these positive statistics, news reports state that the number of job seekers and those
unemployed –are generally young people, both graduates and non-graduates. Bank Negara
Malaysia in its Annual Report 2016 revealed that youth unemployment rate in Malaysia reached
10.7% in 2015, more than three times higher than the country’s unemployment rate of 3.1%
figure (7). But still country’s youth unemployment rate is comparatively low as compared to the
global average, noting that youth unemployment problem is global in nature.
There are multitude of factors that contribute to this scenario including: uneven growth between
job creation and numbers of people looking for jobs; mismatch skill set; lack of experience and
skills; competitive job market; technological advancement; and competition with foreign workers
Government of Malaysia thinks that situation is manageable. The government is encouraging
companies to open up employment opportunities specifically to young adults. .
Inflation, CPI and GDP deflator:
Inflation Rate in Malaysia averaged 3.64 percent until 2017, reaching an all time high of 23.90
percent in March of 1974 and a record low of -2.40 percent in July of 2009. Figure (3) shows
that inflationary pressures in the economy remained low with headline inflation averaging 2.1%
in 2016. Despite the weaker ringgit exchange rate during the year, low global energy and
commodity prices resulted in lower domestic fuel prices and input costs, which mitigated the
impact of adjustments to administered prices and higher food prices caused by the El Niño
phenomenon. Core inflation was also relatively stable during the year, averaging 2.1% in 2016
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Economic Profile of Malaysia
(2015: 2.3%) as demand driven inflationary pressures in the economy remained largely
contained.
Figure (4) shows that headline inflation was higher at 4.3% in the first quarter of 2017 (4Q 2016:
1.7%) driven mainly by cost factors. During the quarter, prices of petrol averaged higher at RM
2.23 per litre compared to an average of RM 1.73 per litre during its base period in the 1Q 2016.
The higher prices for food away from home amidst an increase in rental inflation led to higher
core inflation of 2.4% in 1Q 2017 (4Q 2016: 2.1). This was reflected in the inflation
pervasiveness which remained broadly stable. The limited transmission was attributed partly to
the small share of transportation, energy and basic chemicals (10.4%) in the production cost of
most items in the CPI basket. Domestic production and consumption also have relatively modest
import content (about 20% and 6.7%, respectively), containing the pass-through of the weaker
ringgit.
Summary:
The above facts and figures shows that Malaysia able to manage stable economic growth over the year.
Moderate GDP growth rate is supported by low unemployment rate and lower inflation rate. Although
GDP growth rate is slow down in recent year. After global recession in 2009, Malaysia experience lower
GDP growth (4.2%) in 2016, as political scenario of the world has changed. Inflation rate was
comparatively lower at that time because of low price of oil. With the rise of oil price at the beginning of
2017 inflation rate increases also. Over the year unemployment rate remain stable. The country is facing
problem with youth unemployment. As American president Donald Trump is taking several radical
policies to boast up American economy, trying to create job for American, it might has effect on
economy of Malaysia. Still inflation and unemployment rate is manageable for the country.
Malaysia’s ambition is to become a high-income country around 2020. The stable economy may
achieve the target. In addition to that, the effective implementation of the reforms featured in the
11th Malaysia Plan (2016-20) is important for the country.
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Economic Profile of Malaysia
Appendix:
Figure 1: GDP Growth Rate in Malaysia
Figure 3: Inflation Rate in Malaysia
Figure 2: Quarter to Quarter GDP Growth Rate
Figure 4: Oil Price and Inflation Rate
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Economic Profile of Malaysia
Figure 5: Unemployment Rate in Malaysia
Figure 6: Q to Q unemployment rate
Figure 7: Unemployment rate by age group
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Economic Profile of Malaysia
References:
Available at https://www.statista.com/statistics/318977/gross-domestic-product-gdp-growth-rate-inmalaysia/ access on 30-05-2017
Available at http://www.heritage.org/index/country/malaysia access on 30-05-2017
Available at http://www.thestar.com.my/business/business-news/2017/04/22/time-for-reality-check/
access on 30-05-2017
Available at http://www.bnm.gov.my/files/publication/ar/en/2016/ar2016_en.pdf access on 30-052017
Available at https://www.pressreader.com/malaysia/the-star-malaysiastarbiz/20170327/281655369904856 access on 30-05-2017
Available at http://www.indexmundi.com/malaysia/unemployment_rate.html access on 30-05-2017
Available at http://www.gdpinflation.com/2013/08/inflation-rate-in-malaysia-from-1995-to.html access
on 30-05-2017
Available at http://www.eastasiaforum.org/2017/01/20/malaysias-economy-that-was/ access on 30-052017
Available at https://www.bloomberg.com/news/articles/2017-02-16/malaysia-s-gdp-growth-beatsestimates-on-household-spending access on 30-05-2017
Available at http://www.eastasiaforum.org/2017/01/20/malaysias-economy-that-was/ access on 30-052017