Session Summary
Malaysia’s economic recovery is underway.
Growth has positive momentum in line with economic reopening. This has been backed by a strong banking sector with low exposure to foreign liabilities, and a diversified economy with strong domestic demand and diversified exports.
The labour market has shown strength. Wages have grown while unemployment has reduced to under 4%.
Inflation remains anchored. While increases have been supply-driven, it is expected to peak in the third quarter of this year due to price controls and Malaysia’s spare capacity.
Future challenges remain due to global uncertainty, but optimism remains for Malaysia.
Interest-rate setting will continue accommodate economic growth. While it was reduced to offer financial support during the pandemic, gradual hikes are necessary to ensure monetary and financial stability.
The Ringgit depreciation against the USD offers challenges but also opportunity. The depreciation is driven by stronger USD demand amid global uncertainty. While import costs and food prices will rise, they are contained by social assistance, subsidies, and price controls. Export growth will also benefit, contributing to a stronger labour market.
History has shown that Malaysia has what it takes to remain resilient. From being heavily dependent on commodities in the 1950s, Malaysia transitioned to manufacturing in the 1970s, creating a bustling in the E&E sector.
To ensure long-term prosperity, Malaysia will need to fortify our economic foundations.
A shift is needed to an innovation-based economy away from a cost-minimising model. Ideas will be key, instead of natural resources, followed by products of mass customization and high complexity instead of mass production. Organizations should be characterized by entrepreneurs, start-ups and collaborative networks. Business competitiveness should not be dependent on subsidies or cheap labour, but defined by world class talent, strong institutions and good governance.
Malaysia must embrace new opportunities that are available. One is to move to a greener economy. Besides producing green products such as solar panels, Malaysia’s own rich biodiversity plays a key role. The key is not to monetise our natural assets quickly as commodities or credits for other countries, but to cultivate our own green industries and services.
Financial sector reforms are key and underway. Prior reforms have led to resilience against past crises, enabling it to be a source of relief. To support future economic transformation, the Financial Sector Blueprint lays out five key priorities. These include fostering a vibrant funding ecosystem, elevating household and business financial well-being, advancing financial sector utilisation, facilitating the transition to a green economy, and advancing value-based finance through Islamic finance leadership.