The Return of the State:
Macro and Markets in the Age of Economic Security

Middle Powers Must Compete Through Strategic Positioning

Countries like Malaysia face structural disadvantages when competing directly with China in manufacturing and industrial scale, given China’s lower cost of capital, electricity, and labour productivity-adjusted costs. Instead, middle powers should focus on leveraging their own comparative advantages.

Industrial policy requires difficult trade-offs, as governments cannot support every sector simultaneously. Policymakers must therefore prioritise industries where long-term competitiveness, technological capability, and ecosystem development can realistically be achieved.

Firm-to-firm relationships, regional partnerships, and ecosystem integration are becoming increasingly important in a fragmented global economy. Strong commercial networks can help smaller economies remain relevant within shifting global supply chains and competitions.

Regional Integration Is Increasingly Important for Economic Resilience

Geopolitical tensions, supply chain disruptions, and energy crises are exposing the vulnerabilities of small and open economies across emerging economies like ASEAN. Rising inflationary pressures and tighter monetary conditions were cited as growing regional concerns.

Deeper regional integration within ASEAN could help strengthen economic resilience. Greater cooperation in trade, energy security, and supply chains may allow regional economies to better withstand external shocks and geopolitical fragmentation.

Malaysia was viewed as relatively resilient compared to some regional peers due to its fiscal position and resource base. However, prudent fiscal management and continued reforms are needed to sustain investor confidence and long-term stability.

Structural Geopolitical Shifts Are Reshaping the Global Economy

Current geopolitical environment is not a temporary disruption, but part of a broader structural shift reshaping global trade, capital flows, and industrial strategy. Countries and businesses are increasingly reassessing economic dependencies and supply chain concentration risks.

Industrial policy is back in the limelight globally, with governments playing a more active role in shaping strategic sectors. However, successful industrial development requires clear priorities, long-term consistency, and strong execution capabilities.

Adaptability is key to navigating an increasingly fragmented world economy. Governments, businesses, and investors will need to remain flexible and responsive as new geopolitical and economic realities evolve.

Quotes

“A small open economy like Malaysia is very exposed. We can’t really dictate the dynamics that is shaping the new equilibrium. So we have to navigate within those dynamics and we have to make some choices and the better choice is actually to deepen integration.”
– Dr Nungsari Ahmad Radhi

“When you’re a government, you essentially have four levers to pull on. The four levers are the cost of capital, the cost of labor, the cost of government and the cost of energy. These are really the four things that any government can have massive influence over and that are going to drive your industrial policy.”
– Louis-Vincent Gave