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Malaysia

Briefing Notes for the Launch in Kuala Lumpur, March 2008

Economic growth

  • Malaysia’s economy continued to report positive growth in 2007. Initial reports pointed to a slight decline from 5.9 % in 2006 to 5.7 % in 2007. But stronger growth in the final quarter led to a final outcome for 2007 of 6.3 %.
  • Both private consumption and gross fixed investment grew faster in 2007 than in 2006
  • Private consumption increased its growth rate from 7.1% in 2006 to 10.7% in 2007
  • Investment growth increased from 7.9% in 2006 to 9.5% in 2007
  • Government consumption also increased its growth rate from 5.2% in 2006 to 6.5% in 2007
  • Overall, the growth rate of domestic demand increased from 7.0% in 2006 to 9.7% in 2007
  • The stronger performance of domestic demand helped keep the GDP growing at a similar rate than the year before in the face of an important drop in the rate of growth of exports, from 7.4% in 2006 to 2.1% in 2007
  • GDP growth is forecast to slow down to 5.8% in 2008

Inflation and monetary policy developments

  • Inflation fell from 3.6% in 2006 to 2.0% in 2007
  • The ringgit appreciated 5% against the dollar between January and December of 2007, putting some downward pressure on domestic price inflation
  • The Monetary Policy committee of the Bank Negara Malaysia kept the benchmark Overnight Policy Rate unchanged at 3.5% throughout 2007 and the first two months of 2008
  • The inflation rate is forecast to increase to 2.8% in 2008

Exchange rates and foreign exchange reserves

  • The exchange rate appreciated from an average of 3.51 RM/USD in January of 2007 to an average of 3.33 RM/USD in December of 2007
  • The ringgit continue appreciating in early 2008 to an average of 3.23 RM/USD in February of that year
  • Foreign exchange reserves increased more than 20% during 2007, from US$ 82.5 billion as of December 31, 2006 to US$ 101.3 billion as of December 31, 2007

External sector

  • The current account surplus increased by US$ 4.7 billion, from US$ 25.5 billion in 2006 to US$ 30.2 billion in 2007
  • The goods trade surplus increased by US$ 1.4 billion
  • The services trade balance improved from a deficit of US$ 1.9 billion in 2006 to a surplus of US$ 0.1 billion in 2007, and the deficit in the income account was reduced by US$ 1.4 billion.
  • Malaysia’s terms of trade increased by 3.9% compared to the previous year, due to higher prices of oil and gas and of agricultural commodities such palm oil
  • If the terms of trade had not improved, Malaysia’s exports would have increased more slowly and its trade balance would have dropped US$ 5 billion compared to 2006
  • The main draw back on Malaysia’s exports has been weaker demand for semiconductors and other electric and electronic products in the U.S. market
  • Inward direct investment increased by US$ 2.5 billion, from US$ 6.1 billion in 2006 to US$ 8.6 billion in 2007, while outward direct investment increased by US$ 3.7 billion, from US$ 6.0 billion to US$ 9.7 billion.
  • In November 2007 Malaysia signed a bilateral free trade agreement with Pakistan which includes provisions for bilateral technical cooperation and capacity building in sanitary and phytosanitary measures, intellectual property protection, construction, tourism, healthcare and telecommunications.