SEW103 MACROECONOMICS | GROUP 1

Malaysian
Economy

SEW103 MACROECONOMICS
SEMESTER II, ACADEMIC SESSION 2021/2022
GROUP PROJECT
INSTRUCTOR: DR ABDUL RAIZ ABDUL LATIFF

PREPARED BY
GROUP 1

ANG XIAO SIAN 151856
KAM WEN JING 151556
WONG KIM FONG 151630

WU KEJIAN 154419

Table of Contents

01 02 03

Introduction GDP Productivity

04 05 06

Inflation Unemployment Investment

07 08 09

Saving Conclusion Reference

1.0 INTRODUCTION PAGE 01

Malaysian Economy

INTRODUCTION

Malaysia is located in Malaysia is currently one of
the world's fastest-growing
Southeast Asia with a western economies, with an average
annual GDP growth rate of
portion, Peninsular Malaysia 4.26% from 2000 until 2022.
According to BNM 2022, the
which borders Thailand and an country’s domestic economy
is likewise expected to
eastern portion, Eastern develop at a rate of at least
5.30% through 2022. Malaysia
Malaysia shares borders with has also welcomed
international investors and
Brunei and Indonesia. (World received aid from a variety of
countries and organisations
Population Review, n.d.) throughout the world, all of
which have a direct impact on
Following its independence, the country's economic and
regional growth.
Malaysia had built a planned

economy such as New

Economic Policy, National

Development Policy, National

Vision Policy, New Economic

Model and Shared Prosperity

Vision to guide the growth of

the Malaysian economy.

The main economic regulator This study identifies and
of Malaysia, Bank Negara
Malaysia (BNM), or the Central interprets all the indicators of
Bank of Malaysia plays a
significant role in maintaining macroeconomics including
and regulating economics and
monetary policies for decades. Gross Domestic Product and
This is intended to create a
favourable environment for productivity, inflation and
Malaysia’s economy to thrive
sustainably. (Bank Negara unemployment as well as
Malaysia, n.d.)
saving and investment in

depth. Further details will be

presented in the discussion

section below.

Gross Domestic
Product

Gross Domestic Product (GDP) of the Malaysia from 2017
to 2021 was shown in Table 1 and Graph 1. The GDP had
increased continuously from 2017 to 2019 which are $319.11
billion, $358.79 billion and $365.28 billion respectively. In
2020, the GDP in the Malaysia fell heavily from the 2019 to
the 2020 which is $365.28 billion to $337.01 billion. Next,
the Malaysia of GDP started increasing from $337.01 billion
in 2020 to $372.70 billion in 2021.

2017 Table 1: GDP in $ Billion of
Malaysia from 2017 to 2021

218 Year GDP ($ Billion)

2019 2017 319.11

2018 358.79

2020 2019 365.28

2021 2020 337.01

0 100 200 300 400 2021 372.70

Graph 1: GDP of Malaysia from 2017 to 2021
Source: Department of Statistic, Malaysia

2.0 GDP PAGE 02

PAGE 03

ANNUAL RATE YEAR ANNUAL RATE OF GDP PER
CAPITA GROWTH (%)
GDP per 2017 4.40
2018 3.40
Capital 2019 3.10
2020 -6.90
Growth 2021 1.80

The statistic in Table 2 and Graph 2 Table 2: Annual Rate of GDP per Capita Growth
shows the GDP per capita growth in
Malaysia from 2017 to 2021. The GDP per
capita growth had decreased
continuously from 2017 to 2019 which
are 4.40%, 3.4% and 3.1% respectively. In
2020, the GDP per capita growth in
Malaysia fell heavily from 2019 to 2020
which is 3.10% to -6.90%. Next, the
Malaysia of GDP per capita growth
started increasing from -6.90% in 2020
to 1.80% in 2021.

6% 2018 2019 2020 2021
4%
2%
0%
-2%
-4%
-6%
-8%

2017

Graph 2: Annual Rate of GDP per Capita Growth from 2017 to 2021
Source: Department of Statistic, Malaysia

3.0 PRODUCTION PAGE 04

GDP, PPP
(Current
International $)

Table 3 and Graph 3 have displayed the GDP, PPP (current
international $ in billion) of Malaysia from 2017 to 2021. The
Malaysia of GDP, PPP had increased continuously from 2017 to
2019 which are $829.30 billion, $890.23 billion and $946.38
billion respectively. Then, the GDP, PPP had decreased from
$946.38 billion in 2019 to $903.70 billion in 2020. From 2020
to 2021, the GDP, PPP of the Malaysia rose substantially from $
903.70 billion to $970.74 billion respectively.

YEAR GDP, PPP
(CURRENT INTERNATIONAL $ IN BILLION)
2017
2018 829.30
2019 890.23
2020 946.38
2021 903.70
970.74

Table 3: Annual Rate of GDP per Capita Growth from 2017 to 2021

1,000

750

500

250

0 2018 2019 2020 2021
2017

Graph 3: Annual Rate of GDP per Capita Growth from 2017 to 2021
Source: Department of Statistic, Malaysia

4.0 INFLATION PAGE 05

Inflation Table 4: Inflation Rate in Malaysia from 2017 to 2021

Inflation can be defined as the increase in the YEAR INFLATION RATE ANNUAL CHANGE
general price level in an economy and the rise in the (%) (%)
price level of an economy. There are two types of
inflation, namely demand-pull inflation and cost- 2017 3.87 1.78
push inflation. Demand-pull inflation referred to an
increase in the price level due to an increase in 2018 0.88 -2.99
aggregate demand while cost-pull inflation is a rise
in the price level due to an increase in the cost of 2019 0.66 -0.22
resources such as raw materials, which leads to an
increase in the unit cost of production or a 2020 -1.14 -1.80
decrease in total supply, resulting in inflation.

2021 2.48 3.62

4% 2018 2019 2020 2021
3%
2%
1%
0%
-1%
-2%
-3%

2017

Inflation Rate Graph 4: Inflation Rate in Malaysia from 2017 to 2021

Annual Change of Inflation Rate Source: Department of Statistic, Malaysia

According to Graph 4 and Table 4, the inflation Furthermore, the inflation rate of Malaysia
rate of Malaysia fluctuated from 2017 to 2021. declined 1.80% from 0.66% in 2019 to -1.14% in
In the beginning, Malaysia’s inflation rate 2020 due to a larger decline in the price of
declined from 3.87% in 2017 to 0.88% in 2018 housing, electricity, gas and petroleum. In
due to the regular price control and good contrast, Malaysia’s inflation rate increased
agricultural production monitoring by the 3.62% from -1.14% in 2020 to 2.48% in 2021
government. Next, the inflation rate of Malaysia caused by the devaluation of Malaysia Ringgit
decreased 0.22% from 0.88% in 2018 to 0.66% and weaker foreign exchange rates which
in 2019. Between 2018 and 2019, there are good increase living cost and also caused cost-push
price adjustment contracts conducted by the inflation due to the rising cost of imported raw
government in order to control inflation. materials or goods and services in Malaysia.

Unemployment platform provided by the government
that offers job seekers information to
Unemployment can be defined as the aid the job application process through
term for people who are employable "JobsMalaysia". Other than that, Joint
and actively seeking work but are Management Corporation (JMC)
unable to find a job. Included in this collaborated with the private sector to
group are those workers who are organise events such as career
working but do not have a suitable job. carnivals, open interviews and job
The formula used to measure placement programs; provided vacation
unemployment rate is the number of placements for college students; and
unemployed divided by the total organised special group placement
number of people in the labour force. programmes for vulnerable populations
There are three types of such as ex-offenders, single mothers,
unemployment, namely structural, retirees, and the homeless, thereby
frictional, and cyclical. reducing the unemployment rate.
(Fernando Fong & Veena Babulal, 2017).
Based on Graph 5 and Table 5, the Next, the unemployment rate in
unemployment rate of Malaysia Malaysia increased 0.1% from 3.30% in
increased from 2018 to 2021 except in 2018 to 3.31% in 2019 due to the skills
the period between the years 2017 and mismatch, education level, and work
2018. This is because there is a digital experience of the labour force, typically
youth labour. (Shakur & N.d., 2020).
5.0 UNEMPLOYMENT After that, Malaysia’s unemployment

PAGE 06

5.0 UNEMPLOYMENT PAGE 07

YEAR UNEMPLOYMEN ANNUAL rose 1.24% from 3.31% in 2019 to 4.55%
T RATE (%) CHANGE (%) in 2020 due to the unfavourable
business performance during the year,
2017 3.87 3.41 which led to an increase in employment
2018 0.88 3.30 losses and the freezing of new hirings.
2019 0.66 3.31 Therefore, softer labour demand was
2020 -1.14 4.55 observed with a lower number of
2021 2.48 4.61 employment opportunities registered.
Furthermore, unemployment has also
Table 5: Unemployment Rate and Its Annual increased 0.06%, from 4.55% in 2020
Change in Malaysia from 2017 to 2021 to 4.61% in 2021. This shows that the
COVID-19 pandemic has seriously
impacted the Malaysian economy and
caused many individuals in Malaysia to
become unemployed due to the
political uncertainty, the decline in
crude oil prices, economic recession,
and government restrictions caused by
the COVID-19 pandemic. Furthermore,
the continuous increase in the
unemployment rate from 2018 to 2021
is not a good phenomenon because
there is a negative trend in labour
demand.

5%

4%

3%

2%

1%

0%

-1% 2018 2019 2020 2021
2017

Annual Change of Unemployment Rate Graph 5: Unemployment Rate and its Annual Change in
Unemployment Rate Malaysia from 2017 to 2021

Source: Department of Statistic, Malaysia

Philips Curve

for Inflation Rate and Unemployment Rate in Malaysia
from 2017 to 2021

4%

3%

2% According to Graph 6 and
1% Table 6, we can know that
0% the inflation rate in Malaysia
-1% fluctuated from 2017 to
-2% 2021. In the beginning,
Malaysia’s inflation rate
1% declined from 3.87% in 2017
2% to -1.14% in 2020, and then it
3% rose to 2.48% in 2021. After
3.41% that, the unemployment rate
3.03% of Malaysia decreased from
3.31% 3.41% in 2017 to 3.30% in
4.55% 2018, then it increased 1.31%
4.61% from 3.30% in 2018 to 4.61%
5% in 2021.

Graph 6: Philips Curve for Inflation Rate and Unemployment PAGE 08
Rate in Malaysia from 2017 to 2021

Source: Department of Statistic, Malaysia

YEAR INFLATION UNEMPLOYMENT

RATE (%) RATE (%)

2017 3.87 3.41
2018 0.88 3.30
2019 0.66 3.31
2020 -1.14 4.55
2021 2.48 4.61

Table 6: Inflation Rate and Unemployment Rate
from 2017 to 2021

5.0 UNEMPLOYMENT

5.0 UNEMPLOYMENT PAGE 09

Trade-off Between
Inflation & Unemployment

Trade-off between inflation and unemployment means the
relationship between inflation and unemployment rate is
inverse, which indicates if the unemployment rate decreases,
the inflation rate increases and another way around (The
Relationship Between Inflation and Unemployment, n.d.).
When the unemployment rate is low. The demand for
employees exceeds the supply. Wage inflation occurs
because employers need to offer higher salaries to retain or
increase the labourers to keep up or increase the production
(Picardo, 2021). This causes the wages per capita to rise. The
higher salary also increases the disposable income and
eventually leads to higher spending power. With higher
disposable income enables the individuals to purchase more
goods and services. The demand for goods and services
increased and so did the supply. The shifts increase the
price of goods and services and so does the inflation.

Generally, a short-run Philip curve is L-shaped,
representing the inverse relationship between inflation and
unemployment rate. However, in Malaysia’s case, the trade-
off only applies to the inflation and unemployment rate from
2018 to 2020. According to Graph 8 and Table 6, the inflation
rate of Malaysia decreased from 0.88% in 2018 to 0.66% in
2019 while the unemployment rate of Malaysia increased 1%
from 3.30% in 2018 to 3.31% in 2019. Next, Malaysia’s inflation
declines from 0.66% in 2019 to -1.14% in 2020, however its
unemployment rises 1.24% from 3.31% in 2019 to 4.55% in
2020. Both of these situations show the inverse relationship
and trade off between inflation and unemployment. From
2017 to 2018, both inflation and unemployment rate
decreased. As for the period between 2020 to 2021, both
inflation and unemployment rate increased. Hence from 2017
to 2018 and 2020 to 2021 both inflation and unemployment
rate move to the same direction and not considered as the
trade-off.

Impact of Covid-19 on
Inflation and Unemployment

Economy of Malaysia also faces inflation under the influence of the Covid-19 pandemic. The
production industry or firms were forced to comply with the SOP, resulting in a shortage of human
resources, rising costs, and rising prices of goods on the market and eventually turning into inflation.

5
4
3
2
1
0
-1
-2
-3

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FJNJADSMOAMJeuauaeoeacpunnvrgytbclpr------------111111111111743668465753
AMMDJMNJOuJaaaeuaocgrrutyclnnv----------22111122220911180298

Graph 7: Malaysia Headline Inflation. January 2011-March 2022
Source: CPI March 2022

Graph 7 shows Malaysia’s headline inflation Based on Graph 9, however many industries
from January 2011 to March 2022. In March were forced to suspend business, even though
2020 which was the early stage of the Covid-19 the manufacturing sector was allowed to
pandemic, the inflation rate was at the lowest operate but the cost had risen due to
rate -2.9% but it increased to the highest insufficient foreign workers. They are also
inflation rate of 4.7% in May 2021. This is forced to comply with SOP to prepare
probably due to the rising of the Covid-19 epidemic prevention supplies like masks,
pandemic in May 2021 (Graph 8), the sanitizers, and gloves. This leads to a raise in
government was forced to implement an the producer price index (PPI) to 111.6% in May
extension of CMCO at Sarawak from 27th April 2021. After that, the PPI had increased gradually
to 17th May but domestic confirmed cases are from June to November but it decreased to
still rising. Therefore, the government had to 115.6% in December 2021 and increased again
implement the MCO to minimise the spread of from January 2022 to March 2022. Therefore,
the pandemic. when the cost of producers increases, PPI will
increase, the price of products increases,
inflation rate increases.

5.0 UNEMPLOYMENT PAGE 10

The price index for transport 5,000,000
components had raised and was 4,000,000
recorded at 9.5% while food and 3,000,000
non-alcoholic beverage component 2,000,000
reached 1.5% due to the higher price 1,000,000
of raw materials for the preparation
of cooking at home like meat, milk 0
cheese, and egg, an insufficient
supply of these raw materials due to SFDANMFJJAOMAJMJDANJMeeAeauOoMeuaJcappauuaeauocgtvpbyrrlcaprbnnruyrtrlcgnnv-------------------------22222222222222222222222221001110010110101221220020
when pandemic COVID-19 the import
supply was hampered while Graph 8: Cumulative Cases
domestic supply unable increase the Source: Worldometer Malaysia
supply in a short period. Therefore,
the demand for food and non- 125
alcoholic beverage components is
higher than the supply leading to 100
high CPI. At the same time, CPI of
transport also increased, gradually 75
recorded at 26.0% due to the decline
in fuel price for private vehicles. 50
These two main issues had led the
inflation rate to reach its highest 25
point.
0 Jul-21 Oct-21 Jan-22
Apr-21

Graph 9: Producer Price Index (PPI) from August
2021 to January 2022

Source: Trading Economics

5.0 UNEMPLOYMENT PAGE 11

Actions Taken to Reduce
Inflation and Unemployment

Monetary Policy Fiscal Policy Wages Subsidy

The monetary policy was In addition to the Programme 1.0-5.0
implementation of the various
implemented by Malaysia's phases of the MCO from March The Malaysian government
2020 to overcome the spread has been working hard on
government to increase the of COVID-19, the government recovering the nation's
has implemented a series of economy. Wages Subsidy
interest rate and control economic stimulus measures, Programme 1.0-5.0 (WSP
both fiscal and non-fiscal, 1.0-5.0) is government-aid
the quantity of money. totaling RM305 billion. These financial assistance that
include the implementation of targets employers whose
(DOSM, 2022). This is the economic stimulus businesses have been
package Prihatin Rakyat impacted by Covid-19 with
because monetary policy (PRIHATIN) totaling RM250 keeping operations and
billion in March 2020, followed maintaining employees in
affects three components by the implementation of terms of monthly financial
PRIHATIN SME+ worth RM10 security. According to Sunil
of aggregate demand, billion in April 2020. In 2021, (2022), this scheme had
the government has injected a total of
which are consumption, implemented four assistance RM20.683 billion to 732,644
and stimulus packages employers to continue
interest, and exports. In comprising fiscal or non-fiscal running and support
with a total value of RM225 employment for 6,849,982
May 2022, the Monetary billion, or 14.8% of GDP, like workers as of 8 April 2022.
PEMERKASA, PEMERKASA+, The implementation of WSP
Policy Committee (MPC) of PERMAI, and PEMULIH to save 1.0-5.0 in different phases
citizens' lives and livelihoods. had ensured the income of
BNM increased the (The Ministry of Finance, 2021). households involved, hence,
minimising the shift of
overnight policy rate (OPR) income classification.

by 25 basis points to PAGE 12

2.00%. (The Sun Daily,

2022). The increase in OPR

forces people and

businesses to pay higher

interest on loans and

mortgages, reduce

borrowing and spending,

then brings inflation under

control.

5.0 UNEMPLOYMENT

PAGE 13

2017-2021 Foreign direct investment (FDI) is an
important indicator that could provide
Foreign Direct insight into the direction of the Malaysian
Investment (FDI) economy. It helps to identify new
opportunities and enhance market access
for companies in Malaysia and foreign
countries.

NTAGES OF FDI TAX REVENUE

Profits from FDI could increase the tax revenue in Malaysia.

TRANSFER OF TECHNOLOGY

New capital inputs could not be achieved through financial investment
and trade in goods and services, thus technology transfer is the main
source of the new capital inputs to Malaysia (Loungani & Razin, 2001).




ADVA DEVELOPMENT OF HUMAN CAPITAL

Employee training, which could be gained from the experience of running
a new enterprise, will contribute to the development of human capital in

Malaysia.



COMPETITION PROMOTION

Enhanced competition in domestic input markets could lead to more
R&D investment and innovation stimulation in Malaysia.

6.0 INVESTMENT

6.0 INVESTMENT PAGE 14

FDI Timeline

2017 2018

Foreign direct investment mainly flew to The services sector continues to be a
services, especially real estate, finance and major sector getting FDI inflows, especially
insurance, and ICT. The second contributor finance and insurance, wholesale and retail

was the mining and quarrying sector, trade activities followed by the
followed by manufacturing. The top region manufacturing and construction sectors.
contributors come from Asia with 63.5% Among the total 8.30 billion USD (RM30.74
including Hong Kong, China, and Singapore,
billion) FDI inflows this year, 44.9% are
followed by Europe and Africa. Among contributed by the Asian region, while
them, Hong Kong remains the main
33.7% are from the European region
investor, while China became the second- (DOSM, 2019). The US was the largest
largest investor by surpassing Singapore
contributor this year.
(DOSM, 2018).
2020
2019
Services and manufacturing were the main
FDI inflows were still mainly into services, contributors to FDI inflows in 2020, and
especially health, real estate, and financial mining and quarrying came the third one.
Investments in services focus on financial
activities. Manufacturing came as the and utility activities while manufacturing
second-largest sector getting inflows investment was injected into the sub-
which were mainly in the form of debt
instruments, equity in refined petroleum, sectors including electrical, transportation
and electrical and electronic products, equipment, and other manufacturing
then followed by the mining and quarrying
(DOSM, 2021). The main contributors to FDI
sector. Japan became the biggest inflows were Singapore, Thailand, and
contributor followed by Hong Kong and the China.


Netherlands (DOSM, 2020).

2021

Manufacturing is the main contributor to FDI
inflows in 2021, followed by services and
mining. Investments in manufacturing are
concentrated in electrical, transport
equipment, and other manufacturing sub-

sectors, while services are concentrated in
finance and insurance. The main contributors
to FDI inflows were the US, Singapore, and the

UK (DOSM, 2022).

6.0 INVESTMENT PAGE 15

Total Investment

Investment is crucial for economic growth since increasing investment will increase the stock
of capital and thus increase productivity. Investment also creates jobs, which will help
address the unemployment issue.

YEAR 2017 2018 2019 2020 2021
22.3
TOTAL INVESTMENT (% OF GDP) 25.5 23.9 21.0 19.7

Table 7: Malaysia Total Investment (% of GDP) from 2017 to 2021

30%

20%

10%

0% 2018 2019 2020 2021
2017

Graph 10: Malaysia Total Investment (% of GDP) from 2017 to 2021
Source: World Bank

Since 2017, Malaysia's total investment as a percentage of GDP has witnessed a downward
trend due to global uncertainty like Brexit negotiations, the “America First” policy, the US-
China Trade War, and China’s tightening its capital outflow rules. These signals of the rise of
protectionist sentiment across the globe have a huge impact on investment performance
globally. Due to the outbreak of COVID-19 in early 2020, Malaysia's total investment as a
percentage of GDP hit its lowest point at 19.7%. However, in 2021, there is a strong rebound
due to the recovery of the world economy.

16.0 INVESTMENT PAGE 16

Total Investment Timeline


FDI
RM54.7 bil

DDI RM197.1 RM54.7 bil

billion

RM121.1 bil RM80.5 bil 2017
RM201.7
billion DDI was the main contributor to the total
RM197.1 billion investment, slightly lower
compared with the figure in 2016. The same
with employment creation. However, the
projects approved increased to 5466 units.

2018 RM125.5 bil

DDI still remained the main contributor to RM207.9 RM82.4 bil
the total RM201.7 billion investment, but the billion

share of FDI increased. Although the total
amount increased a bit, approved projects

and employment creation declined.

RM99.8 bil 2019

RM164.0 The general performance of the total
billon investment in 2019 slightly improved
compared with the figure in 2018. Jobs
creation still decreased since 2017.

RM64.2 bil

2020 RM97.9 bil RM208.6 bil
RM306.5
Due to the outbreak of the COVID-19
pandemic, the investment performance billion
contract to RM164.0 billion. Projects and
employment creation reached the lowest

level in the 5 years.

2021

FDI grew by 224.9% to RM208.6 billion,
compared with RM64.2 billion approved in
2020. Malaysia remains a competitive place
for foreign investors despite multiple global

headwinds. Approved projects rebound
slightly, but job creation still declined.

7.0 SAVING PAGE 17

Saving

of Malaysia, 2017-2021

YEAR 2017 2018 2019 2020 2021

Malaysia Gross Savings (current 90.45 93.75 89.64 80.77 95.90
USD Billion)

Malaysia Gross Savings (% of GNI) 29.16 26.97 25.20 24.46 26.53

Gross saving is the indicator that Table 8: Malaysia Gross Savings
measures the resource available for from 2017 to 2021
investment in capital assets, thus, saving
is closely related to investment. The Gross savings in USD had a
resources that are not for purchasing slight increase in 2018 but
consumer goods and services could be then fall back in the following
used to be invested in productive capital, years and reach the lowest
which could contribute to future level at 80.77Billion USD in
economic growth. 2020 due to the outbreak of
COVID-19. In 2021, it sees a
100 strong rebound to the highest
level at 95.90Billion mainly due
75 to the global economic
recovery. Malaysia's gross
50 savings as a percentage of GNI
witnessed the same trend but
25 were slightly different in 2018.
Although gross savings in USD
0 2018 2019 2020 2021 increased in 2018, the share of
2017 GNI decrease to 26.97% from
29.16% in the previous year.

Graph 11: Malaysia Gross Savings in Current USD Billion and
shares of GNI from 2017 to 2021

Source: World Bank

Conclusion PAGE 18

Over the years, Malaysia had performed
perfectly as one of the most open
economies in the globe. The positive
growth of GDP has proven Malaysia as a
high-income developing nation, although
the pandemic had an impact on the nation
economy. Other than that, the stable
inflation rate showed the Malaysian
government had controlled over the
inflation by adjusting goods price. During
2018, the unemployment rate had the
lowest value of 3.30% compared to other
years while the highest as at 4.61% in 2021.
Therefore, the Malaysian government
regulated the weakening economy by
implementing proper monetary policy,
fiscal policy as well as Wages Subsidy
Programme. Over the years, Malaysia had
injected around 20% of GDP into the
nation’s total investment. Gross savings of
Malaysia had maintained at the range of 90
billion USD to 95 billion USD over the five
years and there is an exception during the
outbreak of COVID-19 in 2020. Malaysia is
confident about the economic will record a
better performance, despite external
threats such as global crises, supply chain
distruptions and rising inflation.

8.0 CONCLUSION

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