Malaysia—Robust economic outlook as political uncertainty persists
World Risk Developments November 2022
Malaysia’s economy performed strongly through 2022, supported by robust domestic demand amid easing COVID restrictions and strong minerals and electronics exports. Real GDP rose 14.2% year on year in Q3 2022, accelerating from 8.9% in Q2. That said, the global economic slowdown, higher inflation and tightening financing conditions are expected to weigh on Malaysia’s export-oriented economy in 2023.
The political uncertainty that has characterised Malaysian politics since 2018—including four Prime Ministers in nearly as many years—will also persist, after the general election held on 19 November produced the country’s first hung parliament. Neither of the largest alliances—Perikatan Nasional led by former Prime Minister Muhyiddin Yassin and Pakatan Harapan led by Anwar Ibrahim—won a parliamentary majority. However, Malaysia’s King appointed Anwar Ibrahim (whose political alliance garnered the greatest number of seats) Prime Minister after he formed a working majority with rival alliance Barisan Nasional. This coalition of multiple parties—some of whom are former rivals—could present challenges to maintaining a stable government and reduce the incentives for implementing necessary but politically difficult reforms.
Despite near-term economic headwinds and political uncertainty, the outlook remains robust (Chart). The IMF projects real GDP growth of 4.4% per annum, on average, from 2023-27, broadly in line with the five-year average of 4.9% from 2015-19. Favourable demographics and an expanding middle class will increase consumption, while long term development plans, if successfully implemented, will raise labour skills, reduce wealth and income disparities and combat corruption, helping to enhance the business environment. Malaysia’s fast growing economy presents opportunities for Australian exporters of food and agribusiness (including halal food), education, health care, digital economy (e-commerce and fintech), infrastructure and resources and energy. Australia exported almost $10 billion of goods and services to Malaysia in 2021, making it our 11th largest export market.