| Economic Overview |
Malaysia is a prosperous and progressive nation and one of the world’s major producers of tin, natural rubber, palm oil and more recently petroleum crude oil and natural gas. In East Malaysia, the economy is based on timber and, in Sarawak, crude oil, liquefied natural gas (LNG) and pepper are major exports. A great deal of effort has been expended to industrialize Malaysia to propel her into the high tech band-wagon. Since the 1980s, high levels of foreign direct investment attracted by generous investment incentives and a pro-business stable government have turned Malaysia from an agrarian and import substitution economy to an export oriented nation.
Malaysia has made a strong economic recovery from the recent Asian financial crisis and has returned to the path of sustained growth. The economy has not only rebounded but continued to perform beyond expectations, with real Gross Domestic Product (GDP) registering an annual growth of 10.3% in the first half of 2000 (11.9% in the first quarter and 8.8% in the second quarter). For the year 2000 as a whole, the economy is poised to register growth of 7.5%. The turnaround and expansion in real GDP has been significant in that, while it was initially external sector-led, it has since become broad-based, driven by the increase in private sector demand and capital formation following the impact of government induced expansionary fiscal and monetary policies. The pick-up in domestic demand will undoubtedly contribute to further strengthening the macroeconomic fundamentals, thereby, reducing the nation’s vulnerability to the vagaries of external demand.
Sound macroeconomic fundamentals continue to prevail. The balance of payments situation continues to be positive led by record trade surpluses despite some narrowing of the current account surplus given the impact of higher “invisibles” and capital account outflows. The nation’s external reserves remain strong ireasing to over US$30 billion sufficient for 6 months of retained import. In addition, the robust expansion in economic activities was achieved in an environment of subdued inflation of below 3% with the economy at almost full employment. Per capita GDP is expected to increase to levels above the pre-crisis period of RM12,883 in 2000 while the per capita in purchasing power parity terms is expected to expand at an even higher pace to register US$7,716 for the year, indicating improving living standards among the rakyat.
As the Malaysian economy consolidates and resumes the path of more sustainable growth, the Government is now focusing on strengthening the foundations of growth to meet the challenges of globalisation and liberalization. This is important given that our ability to cope with the recent financial crisis rested primarily on the fundamental macroeconomic strength of the economy. As private investment and consumption continue to expand, the private sector will resume its role as the engine of growth, thereby, ensuring sustainability of economic expansion in the longer term.
Amidst the rapid transformation taking place in the global economy, Malaysia has also pursued the steps necessary to facilitate the transition from a production-based economy to an economy based on technology and knowledge to ensure that there is continuity in its competitiveness in the new global environment. Attention will continue to be focused on identifying new and expanded sources of growth in both the traditional and ICT sectors of the economy. Steps will also continue to be undertaken to upgrade skills, productivity, efficiency and research and development in new products and services in order to enhance the nation’s resilience and competitiveness.
A five year economic and financial parameter to be displayed in table form Malaysia made a quick economic recovery in 1999 from its worst recession since independence in 1957. GDP grew 5%, responding to a dynamic export sector, which grew over 10% and fiscal stimulus from higher government spending. The large export surplus has enabled the country to build up its already substantial financial reserves, to $31 billion at yearend 1999. This stable macroeconomic environment, in which both inflation and unemployment stand at 3% or less, has made possible the relaxation of most of the capital controls imposed by the government in 1998 to counter the impact of the Asian financial crisis. Government and private forecasters expect Malaysia to continue this trend in 2000, predicting GDP to grow another 5% to 6%. While Malaysia's immediate economic horizon looks bright, its long-term prospects are clouded by the lack of reforms in the corporate sector, particularly those dealing with competitiveness and high corporate debt.