Domestic demand remained buoyant in 2013, but external demand weakened. This year, stronger exports are projected to lift economic growth, even as higher inflation and fiscal tightening act to moderate domestic demand. Current account surpluses will likely rise after narrowing last year. Sharply rising household debt and housing prices pose risks for banks and for growth.

Economic performance

Buoyant domestic demand drove the economy in 2013, but weak external demand and subdued public investment constrained growth in gross domestic product (GDP) to 4.7%, below the average of just over 5.0% since 2010.

Private consumption rose by a vigorous 7.6%, similar to the pace in 2012, and it contributed most of GDP growth in 2013. The expansion in consumption spending was underpinned by 4.8% growth in employment, a low 3.1% unemployment rate, and average real wages that rose by an estimated 0.9% in 2013. Also, a national minimum wage came into effect in January 2013. Additional factors were widespread cash transfers from the government and increases in public sector wages, bonuses, and pensions.

Selected Economic Indicators (%) - Malaysia 2014 2015
GDP Growth 5.1 5.0
Inflation 3.2 3.5
Current Account Balance (share of GDP) 4.1 4.6

Source: ADB estimates.

Economic prospects

Malaysia has high exposure to global trade, with exports of goods and services equivalent to 83% of GDP. Thus, projected improvement in the economies of major industrial countries and in world trade bode well for its growth in 2014 and 2015. At the same time, rising inflation and fiscal tightening will moderate domestic demand.

Taking these factors into account, GDP is forecast to grow by 5.1% this year, quickening from 2013, and by 5.0% in 2015.

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