Malaysia
Date: 5 May 2011
The event will be held in Kuala Lumpur, Malaysia, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Mohamed Ariff
Professor
International Centre for Education
in Islamic Finance (ICEIF)
Shahid Ahmed
Economic Affairs Officer
Macroeconomic Policy and Development Division
United Nations Economic and Social Commission for Asia and the Pacific
Kamal Malhotra
United Nations Resident Coordinator
United Nations Development Programme Resident Representative
Country briefing note <download pdf file>
Economic growth benefits from strong private consumption as well as exports
• After contracting in 2009, the economy expanded by 7.2% in 2010, with double-digit growth in exports and manufacturing in the first half of the year. Amid concerns over currency appreciation and weak demand from the United States , growth moderated in the second half.
• Private consumption remained strong through the year, and on the supply side, services continued to grow robustly, bolstered by retail trading as well as financial and insurance activities.
• Expenditure on machinery and equipment also picked up. Gross domestic investment, however, remains low at some 20% of GDP, behind other major economies in the subregion.
• The implementation of structural reforms as envisioned in the Government's New Economic Model will be vital for boosting competitiveness and sustaining growth in the future.
• Malaysia ' economy is forecast to grow by 5.2% this year.
Inflation remains low, but subsidy cuts could put upward pressure
• Inflation in Malaysia is among the lowest in the subregion, at 1.7% in 2010, but the phasing out of price controls and subsidies could result in upward pressure this year, when inflation is expected to accelerate to around 3%.
• Food prices began to rise after mid-2010, due to subsidy cuts and international prices. Currency appreciation and cheap imports from China have had mitigating effect.
Modest progress is being made to balance the budget
• Fiscal deficit fell from 7% of GDP in 2009 to 5.6% in 2010, as spending was cut back. In an effort to balance the budget, subsidies on energy and sugar were reduced slightly in July 2010.
• In addition, service tax was raised and broadened and a property gains tax was introduced. However, introduction of the Goods and Services Tax (GST, a form of value-added tax) was postponed.
Prudent monetary stance ensures stability
• In response to the faster- and stronger-than-expected recovery, Malaysia went on an early, pre-emptive monetary tightening in 2010, when the policy rate was raised three times by a total 75 basis points between March and July. Since then, overnight rate has remained unchanged, at 2.75%.
• Capital inflows and build-up of liquidity in the domestic financial system have so far been manageable, but the authorities may tighten reserve requirements and strengthen curbs on bank lending.
• Boosted by strong foreign capital inflows, South-East Asian stock exchanges were among the best performers in the Asia-Pacific region in 2010. Malaysia 's stock exchange increased by 19%.
Current account surplus narrows as imports rise and the currency strengthens
• Current account surplus remained large in 2010, but is likely to narrow this year as imports grow faster.
• Broader trends affecting South-East Asian exports are weakening demand in the developed countries, partially offset by rising demand from China and India .
• After suffering a decline in 2009, FDI is also returning to South-East Asia . FDI inflows to Malaysia rose from $1.4 billion in 2009 to $7 billion in 2010.
• Fuelled by massive capital inflows, ASEAN-5 economies saw their currencies appreciate substantially against the dollar in 2010. The Malaysian ringgit gained 11.8%.
• In addition to taming imported inflation, currency appreciation, if broadly in line with fundamentals, could provide an opportunity to develop the domestic market and replace old plants and machineries to boost productivity.
Productive employment and skills development are vital for sustained dynamism
• While unemployment has fallen to pre-crisis levels in many countries in South-East Asia , the formal sector has seen less improvement, as many of the workers who had been laid off were absorbed by the informal sector during the crisis.
• In a number of countries including Malaysia , this change was often reflected in a decline in employment in the high value added manufacturing jobs and a rise in low value added activities in services and agriculture.
• The informal sector, however, suffers from lower productivity, lower wages, poorer working conditions, lower employment protection and minimum levels of social protection. This has serious implications not only for the poor but also for the economy's future growth potential.
• Therefore, human resources and skills development—including strengthened education, technical and vocational training and lifelong learning—are vital for sustained dynamism.