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Malaysia Economy

Flag of Malaysia

Since it became independent, Malaysia's economic record has been one of Asia's best. Real gross domestic product (GDP) grew by an average of 6.5% per year from 1957 to 2005. Performance peaked in the early 1980s through the mid-1990s, as the economy experienced sustained rapid growth averaging almost 8% annually. High levels of foreign and domestic investment played a significant role as the economy diversified and modernized. Once heavily dependent on primary products such as rubber and tin, Malaysia today is a middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world's largest exporters of semiconductor devices, electrical goods, and information and communication technology (ICT) products.

The government continues to actively manage the economy. Malaysia's New Economic Policy (NEP), first established in 1971, was a 10-year plan that sought to rectify a situation whereby ethnic Malays and indigenous peoples (“bumiputera”), who comprised nearly 60% of the population, held less than 3% of the nation’s wealth. Policy makers implemented a complex network of racial preferences intended to promote the acquisition of economic assets by bumiputera. In 1981 when the racial preferences were set to expire, the government extended the NEP for another 10 years, stating that its goals had not been achieved. The policies again were extended in 1991 and in 2001. The Malaysian Government plans to release a new economic model in 2010 which will modify and in some cases eliminate NEP measures in an effort to stimulate higher levels of investment and GDP growth over the next decade.

The Malaysian economy went into sharp recession in 1997-1998 during the Asian financial crisis, which affected countries throughout the region, including South Korea, Indonesia, and Thailand. Malaysia's GDP contracted by more than 7% in 1998. Malaysia narrowly avoided a return to recession in 2001 when its economy was negatively impacted by the bursting of the dot-com bubble (which hurt the ICT sector) and slow growth or recession in many of its important export markets. The global financial crisis threw Malaysia into recession again in 2009, and the government expects a contraction in GDP of around 3% for the year. Economists expect Malaysia to return to a positive growth path in 2010.

In July 2005, the government removed the 7-year-old peg linking the ringgit's value to the U.S. dollar at an exchange rate of RM 3.8/U.S. $1.0. The dollar peg was replaced by a managed float against an undisclosed basket of currencies. The new exchange rate policy was designed to keep the ringgit more broadly stable and to avoid uncertain currency swings which could harm exports.

The Malaysian financial system exhibited noteworthy resilience to the 2008 global financial crisis. Malaysian banks are well capitalized and have no measurable exposure to the U.S. sub-prime market. The central bank maintains a conservative regulatory environment, having prohibited some of the riskier assets in vogue elsewhere. However, decreasing demand in the U.S. and elsewhere is taking a toll on Malaysian exports, resulting in negative GDP growth for 2009 with recovery expected in 2010.

Information by U.S. Department of State

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