Is the Lustre Coming off Malaysia’s Shine? Malaysia’s Recent Economic Performance and Prospects for Future Growth

Abstract

This paper reviews the recent economic situation in Malaysia and examines the prospects for future economic growth. The Malaysian economy continues to perform well, although there are risks and uncertainties. There is evidence that economic growth has started to slow recently in response to the falling oil price and low investor confidence. The Ringgit appreciated against the U.S. dollar through to mid-2014, but has subsequently depreciated. The budget deficit has declined in recent years, reflecting fiscal reform and the introduction of the Good and Service Tax (GST). While we express concern about the risks associated with declining commodity prices and uncertainties over capital flows, we conclude that the prospects for continued economic growth in Malaysia are relatively good. In the short-term cheaper crude oil price imports and major public infrastructure investment projects will spur growth. In the longer-term, we emphasize the role of investment in education in moving up the value-added chain into higher value added manufacturing. We also stress that the government must play a key role in restoring investor confidence and reducing ethnic and religion tension, if Malaysia is continue to exhibit strong growth in the longer term.