The economy has lost momentum in the past couple of years, as the global slowdown hit exports and business investment while fiscal consolidation curbed public investment. The IMF expects growth to remain around 4.5% in 2020, similar to rates in recent years. Amid a challenging global environment for Malaysian exporters, domestic demand will support growth. The resumption of infrastructure projects, including large rail and energy projects, alongside increased capital spending in the services and manufacturing sectors should boost investment. Household consumption should grow solidly thanks to a stable labour market and low inflation. Risks are skewed to the downside; external risks remain prominent, while domestic political infighting could undermine government stability and hinder business confidence.
Longer term, the highly educated work force and high-quality infrastructure support a robust outlook. The government’s recently announced long-term development plan called Shared Prosperity Vision 2030, if successfully implemented, will raise labour skills, reduce wealth and income disparities and combat corruption.
China’s increasing shift into higher value-added production could support Malaysian firms involved in global supply chains. But the country will also need to identify its manufacturing niche to use its large stock of capital adequately.