publication December 18, 2018

Malaysia Economic Monitor December 2018: Realizing Human Potential

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While Malaysia’s economic growth remains resilient, it began to moderate to 4.4% in the third quarter of 2018.

  • Private consumption was the main driver of economic growth due to the zeroization of the Goods and Services Tax.
  • Private investment increased due to a higher volume of capital spending in the manufacturing and services sectors.
  • On the supply side, growth was affected by production shocks in commodity-related sectors.
  • Export growth slowed due to declines in manufactured and agricultural exports.

Looking ahead, Malaysia’s economy is projected to grow at a more moderate pace of 4.7% in 2019. The economy is expected to remain strong as it rests on sound foundations.

  • Due to the country’s close integration with the global economy via financial and trade linkages, uncertainty from the external environment pose risks to the economy.
  • The country should look towards undertaking structural reforms for more sustainable and inclusive growth.
  • Efforts to sustain growth in the near-term have to be carefully balanced with the need to restore fiscal buffers.

For Malaysia to fulfil its aspirations of achieving high-income and developed country status, it will need to make further advances in education, healthcare and social protection systems.

  • The World Bank’s new Human Capital Index (HCI) ranks Malaysia 55th out of 157 countries.
  • Malaysia’s HCI score at 0.62 indicates that children in Malaysia will be only 62% as productive as they could be in adulthood.
  • Malaysia can continue to improve its human capital and boost productivity by working on three key priorities:
    • Enhancing learning outcomes by providing universal access to high-quality early childhood care and education, and improving learning assessment systems. While Malaysia’s learning outcomes are strong, they are significantly lower than the average for high-income countries and regional peers.
    • Improving child nutrition by addressing child stunting to prevent constraints on learning, cognition and productivity in the long-term. One in five Malaysian children under the age of five-years-old suffer from stunting. This is more prevalent in households with lower socio-economic status, but it is also high even among more affluent households.
    • Provide adequate protection through social welfare programs to enable households to invest in human capital. This can be done by leveraging from schemes like Bantuan Sara Hidup (BSH). The BSH has a broad and progressive coverage but the depth of the program seems to be relatively limited, resulting in only a modest effect on overall inequality.