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publication December 9, 2019

Malaysia Economic Monitor: Making Ends Meet

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Malaysia’s economy continues to see growth, but its pace of expansion has moderated.

  • In the third quarter of 2019, growth slowed to 4.4% as a result of subdued global growth and heightened uncertainty.
  • Private consumption remained the highest contributor to growth.
  • Due to weaker-than-expected business and public investment, gross fixed capital formation continued to contract.
  • On the supply side, growth in key sectors such as services, manufacturing and agriculture, mining and construction decelerated.
  • Export demand softened in line with weak global demand.

Looking ahead, Malaysia’s economy is projected to expand at a relatively moderate pace of 4.5% in 2020, amid continued uncertainty and external headwinds.

  • Short-term policies should focus on measures to boost resilience and protect the vulnerable.
  • Building fiscal buffers by raising government revenue without affecting low-income households is necessary to mitigate against potential shocks. This will help create fiscal space for development and social spending to boost shared prosperity.
  • In the medium-term, structural reforms should focus on measures to address critical gaps in human capital formation, facilitate economic opportunities for women, and enhance opportunities for the private sector.

Increasing numbers of Malaysians, especially in urban areas, feel their income is insufficient to meet the cost of living. Malaysian households commonly face issues in these four key areas when working to make ends meet:

  • Consumer price inflation
    • Price increases for most goods and services have been low and stable. However, living costs vary significantly across Malaysia and as such, the purchasing power of a ringgit varies from place to place, directly affecting the cost of living.
  • Inadequate income
    • Income growth among younger and less educated workers has been sluggish despite rising educational attainment.
  • Poor financial well-being
    • Malaysian households, particularly lower-income households, do not have adequate financial savings, making its savings rate low in relation to OECD countries and other comparators.
  • Shortage of affordable housing
    • The lack of affordable housing is particularly severe among households earning less than RM5,000.

Moving forward, alleviating cost of living pressures demands a mix of short-term measures as well as medium- and long-term structural reforms. These include tackling issues such as:

  • Increasing prices and large geographic price differences
  • Inadequate income among lower-income households and younger workers
  • Poor financial well-being and higher indebtedness among lower-income households as well as low savings among Malaysians
  • High degree of unaffordability among low- and middle-income households