MALAYSIA Key conditions and Recent developments challenges For the year 2021, the economy grew at 3.1 percent (2020: -5.6 percent). Overall, Table 1 2021 Malaysia is gradually emerging from the recovery in 2021 was driven by im- Population, million 32.8 the worst wave of the pandemic. With provement in both private and public GDP, current US$ billion 372.7 vaccination program making impres- spending. On the supply side, the econo- GDP per capita, current US$ 11371.2 sive progress, most economic and so- my was supported by the rebound in the a 0.0 International poverty rate ($1.9) cial sectors are now allowed to oper- manufacturing, services, and mining sec- a 0.3 ate. Nearly 100 percent of adults are tors. Nevertheless, it is important to note Lower middle-income poverty rate ($3.2) a 2.9 fully vaccinated, and 64 percent have that the economic performance in 2021 re- Upper middle-income poverty rate ($5.5) Gini index a 41.1 received their booster (third dose) in mains below pre-pandemic levels. School enrollment, primary (% gross) b 104.4 early March 2022. The government has Conditions in the labor market have im- b 76.2 also announced its plans to transition proved. The unemployment rate declined Life expectancy at birth, years into endemicity, which include the re- to 4.3 percent in 4Q 2021 (4Q 2020: 4.8 Total GHG Emissions (mtCO2e) 358.5 opening of international borders be- percent), partly driven by the various la- Source: WDI, Macro Poverty Outlook, and official data. ginning April 2022. As such, this is ex- bor market incentives. Wages for manu- a/ Most recent value (2015), 2011 PPPs. b/ Most recent WDI value (2019). pected to contribute to the recovery of facturing and services grew at 4.7 percent the economy. and 1.2 percent respectively in 4Q 2021. Nonetheless, key challenges remain. Employment was less volatile in the sec- Fiscal space is expected to remain con- ond half of 2021, according to the World strained, limiting the room for fiscal Bank High-Frequency (HiFy) Phone Sur- The economy is projected to expand by policy to play a bigger redistributive vey. As a result, more than half of house- 5.5 percent in 2022, supported by a role. Gaps in the social protection sys- holds who fell into lower-income brackets recovery in domestic demand and an tem remain/persist, leaving out several by June 2021 have recovered to pre-pan- expansion in exports. Downside risks vulnerable groups such as youth and demic levels by November 2021. Howev- informal workers. In addition, the er, disruptions to employment and labor to growth remains, with the military triple shocks of COVID-19, food in- income remain greater among the poor conflict in Ukraine emerging as a key flation, and floods may deplete poor and vulnerable, including younger and risk. While the economy is projected to and vulnerable Malaysians’ resilience less educated workers. be on a recovery path, COVID-19, toward future shocks, and in turn, Inflation has been on an upward trend, food inflation, and floods are expected widen socioeconomic inequalities consistent with a closing output gap. The among Malaysians. Recognizing this, CPI rose to 3.2 percent in December 2021 to weigh down progress on wellbeing the government’s top priorities are to (Nov: 3.3 percent). The upward trend is of the poor and vulnerable. ensure effective fiscal policies and de- mainly due to the rise in food and fuel velop inclusive social protection as prices, and base effects. Higher food prices stated in the Twelfth Malaysia Plan were largely due to supply-related factors (2021-2025) and the Budget 2022. including adverse weather conditions and FIGURE 1 Malaysia / Real GDP growth and contributions to FIGURE 2 Malaysia / Actual and projected poverty rates and real GDP growth real private consumption per capita Percent, percentage points Poverty rate (%) Real private consumption per capita (constant LCU) 20 20 35000 15 18 30000 10 16 5 14 25000 0 12 20000 -5 10 8 15000 -10 -15 6 10000 -20 4 5000 -25 2 Q1-2017 Q2-2018 Q1-2019 Q4-2019 Q3-2020 Q2-2021 0 0 Private Consumption Public Consumption 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 GFCF Change in Inventory International poverty rate Lower middle-income pov. rate Net Exports Real GDP,y/y Upper middle-income pov. rate Real priv. cons. pc Sources: Department of Statistics Malaysia and World Bank staff calculations. Source: World Bank. Notes: see Table 2. MPO 1 Apr 22 higher prices of animal feed stocks. The exposure to Russia and Ukraine is mini- Fiscal space is expected to remain limited government announced that it has taken mal. In the exchange rate market, the ring- in 2022 highlighting the need to rebuild fis- steps to stabilize prices on crucial food git is on a depreciating trend. Between 1 cal buffers over the medium-term. A rise items such as rice and meat, including to January to 28 February 2022, the real ef- in commodity prices provides only tem- extend the price controls on selected items fective exchange rate (REER) depreciated porary fiscal relief. Government revenue and provide additional subsidies. Going by 0.4 percent, and is slightly undervalued has been on a downward trend since 2012, forward, the central bank expects average relative to fundamentals. and operating expenditures have grown inflation to remain moderate and core in- markedly over time, resulting in signifi- flation to be modest. Reflecting this, mon- cant budget rigidity. However, in the ab- etary policy stance is expected to remain sence of a fiscal rule for commodities, the unchanged in the near term. Outlook risk of fiscal policy pro-cyclicality increas- In late 2021, 11 states were hit with floods es. The government has proposed intro- displacing an estimated 70,000 people; re- The economy is expected to recover this ducing a Fiscal Responsibility Act (FRA) sulting in devastating losses of RM6.1 bil- year, with growth projected at 5.5 percent, which could establish a path for medium- lion (0.4 percent of GDP). Households in supported by a rebound in domestic de- term fiscal consolidation. the Klang Valley areas were hardest hit, mand and continued expansion in exports. The welfare of poor and vulnerable house- involving damages to dwellings and ve- The external sector will continue to lend holds remains precarious given multiple hicles. The Malaysian Family Flood Aid its support especially electric and electron- shocks. Findings from the HiFy survey worth RM1.4 billion (0.1 percent of GDP) ic (E&E) goods and medical rubber gloves. show that, even after receiving government was allocated to alleviate the burden on While economic recovery remains under- assistance, more than 60 percent of lower- households and businesses. way in early 2022, the balance of risks re- income households with monthly income In January 2022, the central bank kept its mains tilted to the downside. The unfold- RM4,000 or below (USD$958 current prices) overnight policy rate (OPR) at 1.75 percent, ing developments surrounding the self-assessed having inadequate financial and reiterated its view that monetary pol- Ukraine military conflict has emerged as a resources to cover their basic needs in icy remained accommodative. In the do- key risk. Other risks include weaker-than- late-2021. Meanwhile, one-quarter of mestic financial markets, there has been an expected global growth, a worsening in households reported having savings that increased in volatility given the Ukraine supply chain disruptions, and the emer- will last only for three months or less, while military conflict. However, direct portfolio gence of more severe COVID-19 variants. 16 percent do not have savings at all. TABLE 2 Malaysia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2019 2020 2021e 2022f 2023f 2024f Real GDP growth, at constant market prices 4.4 -5.6 3.1 5.5 4.5 4.4 Private Consumption 7.7 -4.3 1.9 8.5 6.2 5.9 Government Consumption 1.8 3.9 6.6 1.8 0.5 0.5 Gross Fixed Capital Investment -2.1 -14.5 -0.9 6.9 2.8 2.8 Exports, Goods and Services -1.0 -8.9 15.9 4.3 4.3 4.2 Imports, Goods and Services -2.4 -8.4 18.5 4.5 4.4 4.3 Real GDP growth, at constant factor prices 4.5 -5.6 3.1 5.5 4.5 4.4 Agriculture 2.0 -2.2 -0.2 4.1 3.2 2.7 Industry 2.6 -6.2 5.7 4.2 3.7 3.6 Services 6.2 -5.7 1.9 6.7 5.2 5.2 Inflation (Consumer Price Index) 0.7 -1.1 2.5 2.7 2.0 1.9 Current Account Balance (% of GDP) 3.5 4.2 3.5 4.1 3.7 3.7 Net Foreign Direct Investment (% of GDP) 0.4 0.2 2.1 1.7 1.8 1.8 Fiscal Balance (% of GDP) -3.4 -6.2 -6.4 -5.9 -5.3 -4.6 Debt (% of GDP) 52.4 62.1 63.5 65.1 66.2 67.2 Primary Balance (% of GDP) -1.2 -3.8 -3.9 -3.8 -3.3 -2.6 a,b International poverty rate ($1.9 in 2011 PPP) 0.0 0.0 0.0 0.0 0.0 0.0 a,b Lower middle-income poverty rate ($3.2 in 2011 PPP) 0.1 0.1 0.1 0.1 0.1 0.1 a,b Upper middle-income poverty rate ($5.5 in 2011 PPP) 1.4 1.6 1.6 1.2 1.1 0.9 GHG emissions growth (mtCO2e) -1.4 -6.6 0.2 1.3 1.0 1.3 Energy related GHG emissions (% of total) 58.7 56.3 56.2 56.5 56.7 57.0 Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD. a/ Calculations based on EAPPOV harmonization, using 2011-HIS and 2015-HIS.Actual data: 2015. Nowcast: 2016-2021. Forecasts are from 2022 to 2024. b/ Projection using annualized elasticity (2011-2015) with pass-through = 0.7 based on private consumption per capita in constant LCU. MPO 2 Apr 22