Economic Outline

Economic Indicators

For the latest updates on the key economic responses from governments to address the economic impact of the COVID-19 pandemic, please consult the IMF's policy tracking platform Policy Responses to COVID-19.

Malaysia is the 4th largest economy of South East Asia and has continued to perform strongly in recent years, due to a strong global demand for electronics, increased demand for commodities, such as oil and gas, an improving labour market, a pro-cyclical budget and ample infrastructure spending. However, the government's declining expenditure as well as lower public and private investments already reduced economic growth to 4.4% in 2019. Due to the COVID-19 pandemic, the growth has been sharply reversed to -5.5% in 2020 but rebounded at 3.1% in 2021 and 5.4% in 2022. The IMF's latest forecast (October 2022) is expecting another strong growth at 4.4% in 2023 and 4.9% in 2024, subject to the post-pandemic global economic recovery.

During the past few years, a political crisis, low oil and commodity export prices and the slowdown in China have deeply affected Malaysia’s economy, putting pressure on the country's finances. Malaysia has the highest debt level in the region, estimated at 69.6% of GDP in 2022 (IMF, October 2022), with spending increasing faster than GDP. Debt levels are expected to remain stable in 2023 and 2024 at 70%.

Due to the economic crisis caused by the Covid-19 pandemic, Malaysia recorded a Government Budget deficit equal to -3.5% in 2020 and -6.5% in 2021 of the country's Gross Domestic Product (Ministry of Finance Malaysia, 2022). It remained at 4.1% in 2022 and is forcasted to stabilised at -3.1% in 2023 and 2024. Future budget measures include a more inclusive economy for the population: increased cash support for low-income families, extra funds for affordable housing projects, more entrepreneurship programmes to elevate lower-income groups and an increase in Malaysia’s competitiveness. The government faces various challenges, including the weakening of the Malaysian currency, the drop in oil prices (since oil revenues account for 30% of state revenue) and the fall in commodity export prices. Inflation went negative in 2020 at -1.1% and then reached 2.5% in 2021 and 3.2% in 2022. It is expected to stabilise at 2.8% in 2023 and 2024 (IMF, October 2022).

Malaysia is on track to achieving high-income status by 2024. The country has one of the highest standards of living in Southeast Asia and a low unemployment rate estimated at 4.5% in 2022 (IMF, October 2022), but the youth unemployment rate is more than triple (15.6%, World Bank, 2022) and rural youth doesn't count statistically. The 11th Malaysia Plan charts a path toward advanced economy status and greater inclusion, through a range of development issues such as equity, inclusiveness, environmental sustainability, human capital development, and infrastructure. Less than 1% of Malaysian households live in extreme poverty. The IMF expects the unemployment rate to stabilise at 4.3% in 2023 and 4.2% in 2024.

In 2023, the country’s most immediate challenge will be to navigate the volatile international context, due to the persistent health and economic effects of a global pandemic and a war in Europe, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.

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