Economy

A rebound in exports coupled with buoyant private consumption and private investment in Malaysia drove economic growth of 6.3% in the first half, which exceeded expectations. Exports benefited from stronger demand in industrial economies for electronics and electrical products. Growth in employment and wages helped to propel private consumption. Private fixed investment expanded at double-digit rates, but public sector fixed investment fell, largely reflecting government efforts to tackle the fiscal deficit.

Selected Economic Indicators (%) - Malaysia 2014 2015
ADO 2014 Update ADO 2014 Update
GDP Growth 5.1   5.7  5.0   5.3 
Inflation 3.2   3.3  3.5   3.6 
Current Account Balance (share of GDP) 4.1   4.4  4.6   4.6 

Source: ADB estimates.

The pace of growth is seen moderating in the second half of 2014 and into 2015, a result of base effects and tightening fiscal and monetary policies. The central bank raised its policy interest rate in July this year, and further increases are expected. Nevertheless, growth this year and next is now projected to top the forecasts in the Asian Development Outlook (ADO) 2014 last April.

Higher inflation this year - accelerating to 3.3% in the first 8 months - has stemmed from solid growth in domestic demand and government decisions in 2013 to reduce subsidies, hike power tariffs, and raise the tax on tobacco. The upward trend is seen continuing in 2015 when the government plans to further reduce subsidies and replace current sales and services taxes with a broader 6.0% tax on goods and services from April 2015. Inflation forecasts are edged up from those in April.

The projection for the current account surplus in 2014 is raised since April in light of a strong performance in the first half, when a larger trade surplus and narrower deficits in services, income, and transfers produced a current account surplus equal to 6.9% of GDP. The financial account, by contrast, recorded net outflows in the first half.

Source: ADB. 2014. Asian Development Outlook 2014 Update. Manila.