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THE ECONOMY OF MALAYSIA Economic History

1815-1914: World Trade Expansion - 4-5% growth rate - Industrial revolution - Production of tin and rubber 1912-1922: Post World War I Malaysia experienced "depression" of its economy Mid to late 1920's: Strong growth for Malaysian economy 1929-1932 GREAT DEPRESSION: Prices of Malaysian products, especially rubber, fell; causing "economic downfall" Prior World War II: Old International Division of Labor Malaysia had been exporter of raw materials and importers of manufactures 1942-1945: JAPANESE OCCUPATION - Businesses reassigned to Japanese interests - Laborers focused on military projects 1960's: From rubber, Malaysia switched to "oil palms" - supplying 20% of world demand - and hard wood timber 1970's: Malaysian economy based itself on natural resources and manufacturing - textile, electrical goods & electronics, rubber goods - discovery of large oil and natural gas deposits in East Malaysia 1982: Value of gas exports had reached its peak NEW ECONOMIC POLICY: Restructuring of Malay economy from 1970 to 1990 The NEP aims for the following: 1.) To redistribute corporate equity so that bumiputera would rise from 2% to 30% 2.) To eliminate the close link between race and economic function and restructive employment 3.) To eradicate poverty irrespective of race Export-oriented industrialization, free-trade zones, duty-free import of raw materials improvements in education and health NEW DEVELOPMENT POLICY 1991: VISION 2020: fully industrialized country and quadruple per capita income 1990's Growth of 8-9% a year Heavy expenditure on infrastructure e.g. Petronas Tower (1994)

Shock that slowed the growth of Malaysia

RENTIER CAPITALISM 2000's - Positive economic growth - Strong resource base of oil production and agricultural products (e.g. palm oil) 2008-2009 RECESSION 2010 strongest real GDP growth for the decade at 7.2% Investment activities and robust private consumption

2011: 3rd highest level of foreign direct investment among its South East Asian peers (due to strong economic fundamentals and favorable rates)

Economic Outlook by Chia Wai Mun and Li Mengling


THE DEMAND SIDE (C+I+G+NX) - Private consumption will continue to expand amid a fairly strong labour market - Government spending will account for around 14% of total GDP, guided by the Tenth Malaysia Plan (TMP) - 10MP is a medium-term spending programme for 2011-2015 that focuses on improving infrastructure and education for local workforce Improvement in external conditions is likely to boost demand for imports of intermediate goods used in manufacturing imports THE SUPPLY SIDE - Industrial sector will continue to account for a large share of the economy - The service sector will become the largest and most dynamic part of the the economy o Financial services o Wholesale trade o Hotel and restaurant sector - Reduce subsidies on food and energy as part of the subsidy - rationalization programme - Increase expenditure by expanding the tax base to reduce budget deficit - Expected to sign additional bilateral free trade agreements in the forecast period. - Removal of trade barriers for maintenance of low inflation environment - Insufficiency of highly-educated workforce - Political difficulty of extending equal opportunities to all racial group - Impediment to advancement from conservative Islam - Large geographical distance

1997-1998: Asian Financial Crisis - Heavy outflow of foreign capital - Economic numbers went negative