Boosting productivity, especially in smaller enterprises, improving social protection and addressing climate risks will help foster sustainable growth and raise living standards in Malaysia
PARIS, France, (OECD) – Growth in Malaysia has remained robust despite multiple challenges, including the COVID-19 pandemic, supply chain disruptions, and the implications of Russia’s war of aggression against Ukraine. The economic development has held up supported by strong domestic demand, low unemployment and moderate inflation.
According to the latest OECD Economic Survey of Malaysia, GDP is expected to grow by 4.9% in 2024 and 4.7 percent in 2025, up from 3.6 percent in 2023. Growth is driven by surging domestic demand and a rebound in exports, including in the electronics sector. Inflation is expected to remain stable, at 2.8 percent in 2024 and 2.7 percent in 2025, after 2.5 percent in 2023, thanks to a continued prudent monetary stance in the near term.
The fiscal deficit increased significantly during the pandemic as the government took measures to limit the economic fallout in many sectors, but it has narrowed since then. As public finances are exposed to rising spending pressures related to social protection, education, health and long-term care, Malaysia needs to accelerate the ongoing fiscal consolidation, including by phasing out subsidies and raising additional revenues through tailored tax reforms and improvements in tax administration.
Malaysia also needs to strengthen its efforts to reduce poverty and improve equality of opportunities across the population. Current social assistance programmes, particularly government subsidies, need to be better targeted to bring real benefits to vulnerable households. Pension coverage will need to expand to support the elderly and prepare for population aging. Better aligning tertiary education with labour market needs would provide better opportunities for workers and help to raise productivity.
“Malaysia’s strong economic performance is paving the way for faster convergence in living standards relative to more prosperous countries in the OECD,” OECD country studies director Luiz de Mello said, presenting the Survey in Putrayaja alongside Malaysia’s minister of the economy Rafizi Ramli. “To achieve more inclusive and sustainable growth, the country needs to implement well-targeted social assistance policies, make the most of small enterprises’ productive potential, and gear up its climate efforts.”
Many Malaysians work in smaller firms or are entrepreneurs. To harness healthy and sustainable economic growth, the Survey recommends fostering productivity in micro, small and medium enterprises by streamlining support, encouraging digitalisation and diversifying access to finance. Reducing market regulations will also foster competition, allowing more micro, small and medium enterprises to scale up and become successful exporters, adding further strength to the country’s economy.
The country needs to tackle climate challenges by phasing out fossil fuel subsidies and introducing carbon pricing. Building a disaster risk finance and insurance framework will help to increase the country’s resilience to extreme weather events, including floods, heat waves and storms, to which Malaysia is particularly prone.
See a Survey Overview with key findings and charts (this link can be used in media articles).
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