Chapter 2

chap ter 2
Macroeconomic
Outlook
57 ov e rv i e w
57 econom y i n 2022
globa l econom y
Feature Article 2.1 – Spillover Effects of Russia-
Ukraine Conflict on Malaysia
dome s t ic econom y
Feature Article 2.2 – Strengthening Construction
Sector towards a Sustainable Economic Growth
Feature Article 2.3 – Malaysia’s Trade

Performance: Pre-, During and Post-Pandemic
(2017 – June 2022)
Feature Article 2.4 – Food Inflation in Malaysia
99 outlook for 2023

globa l outlook
dome s t ic outlook
10 6 conclus ion
107 r e fe r e nce s
Chapter 2.indd 55 29/09/2022 6:21 PM

Chapter 2.indd 56 29/09/2022 6:21 PM
chapter 2 macroeconomic outlook
chapter 2
Macroeconomic Outlook
Overview employment prospects, sustained consumer

and business confidence as well as continuous
policy support for vulnerable households are
Growth momentum persists amid global
projected to stimulate domestic demand.
headwinds
Steady external demand, especially for
electrical & electronic (E&E) products and major
Global growth is projected to moderate in
commodities, is anticipated to continue driving
2022, after experiencing a strong economic
the exports, thus maintaining a surplus in
expansion, both in advanced economies as
current account of the balance of payments
well as emerging markets and developing
(BOP).
economies (EMDEs), in 2021. In addition,
escalating inflationary pressure as a result of
On the supply side, all economic sectors
high commodity prices is projected to prompt
are projected to expand, with the services
most central banks to tighten their monetary
and manufacturing sectors remain as the
policy. Meanwhile, a slowdown in China's
major contributors to the economy. The
economic activities, supply chain disruptions
services sector will benefit from an increase
and prolonged geopolitical tensions are
in domestic demand and tourism activities.
anticipated to soften global growth in 2023.
The manufacturing sector is expected to be
driven by global demand for E&E and rubber-
Malaysia’s economic recovery continued its
based products coupled with an expansion
strong momentum in the first half of 2022
in domestic industries such as food and
amid the global headwinds. The GDP grew
construction related products. Meanwhile, the
at 6.9% during the period supported by the
construction sector is projected to improve
implementation of Budget 2022 measures,
with the acceleration of existing infrastructure
transition to the endemicity and reopening of
projects and higher private investment that
international borders. The economy is expected
would increase demand for more commercial
to grow at 6.1% in the second half of 2022
and residential buildings. Thus, the nation’s
in line with strong domestic pent-up demand
GDP is forecast to expand between 4% – 5% in
from private sector, remarkable tourism
2023.
activities and outstanding trade performance.
Furthermore, robust performance in services
and manufacturing sectors as well as
improvement in the labour market conditions
Economy in 2022
are envisaged to contribute significantly to
the economic growth. Overall, the nation’s Global Economy
economy is expected to grow between
6.5% – 7% in 2022. Moderate growth amid global challenges
In line with the softening global economic Global growth is expected to expand by 3.2%
outlook, Malaysia’s economy is expected in 2022, supported largely by Asia Pacific’s GDP
to moderate in 2023. Strong economic growth despite the rising energy prices, supply
fundamentals, further improvement in chain disruptions and challenging financial
economic outlook 2023 57
Chapter 2.indd 57 29/09/2022 6:21 PM

chapter 2 MACROECONOMIC OUTLOOK
conditions. The GDP growth in advanced FIGURE 2.1. Global Real Gross Domestic Product,
economies is projected to moderate at 2.5% Trade and Inflation Growth
in 2022. The US growth is anticipated to 2021 – 2023
(% change)
record 2.3% in 2022, due to significantly lower
momentum in private consumption following
%
a weaker household purchasing power 14
and further tightening of monetary policy.
Likewise, the euro area is expected to grow at 12
a slower pace at 2.6% in 2022, mainly due to
10 10.1
a slowdown in the economic activities arising
from the cut of energy supplies by Russia. 8.3
8
In 2022, EMDEs’ economic growth is expected
6.1
to moderate to 3.6%, as a result of lacklustre 6
5.7
domestic and external demand. China’s
4.7
economy is anticipated to grow slower 4 4.1
3.2
at 3.3% weighed down by sluggish consumer 2.9 3.2
demand and investment. Meanwhile, 2
India’s economy is projected to grow by
7.4%, supported by both public and private 0
2021 20221 20232 2021 20221 20232 2021 20221 20232
investments, as well as incentives and reforms REAL GDP TRADE INFLATION
introduced to improve the business climate.

GLOBAL
The GDP growth of ASEAN-51 is envisaged
ADVANCED ECONOMIES
to expand by 5.3%, mainly supported by EMERGING MARKET AND DEVELOPING ECONOMIES
robust domestic consumption and higher
investment. 1
Estimate
2
Forecast
Note: Trade for Advanced Economies and Emerging Market and Developing Economies
World trade is expected to grow moderately to refers to the average volume of exports and imports of goods and services
Source: International Monetary Fund, World Economic Outlook (July 2022)
4.1% in 2022 following prolonged geopolitical
conflict in the Eastern Europe and lockdown
measure in China to contain the spread of at a slower rate of 4.1% and 3.9%, respectively
COVID-19. In 2022, advanced economies is in 2022.
expected to record growth of 5% and 6.1% in
exports and imports, respectively, lower than Global inflation is anticipated to register 8.3%
growth recorded in the previous year. Similarly, in 2022, in line with higher food and energy
trade in the EMDEs is expected to moderate prices. The inflation rate is projected to record
with exports and imports are projected to grow 6.6% in advanced economies and 9.5% in the
EMDEs.
1
ASEAN-5 consists of Indonesia, Malaysia, the Philippines, Thailand and Viet Nam.
58 economic outlooK 2023
Chapter 2.indd 58 29/09/2022 6:21 PM

feature article 2.1
Spillover Effects of Russia-Ukraine Conflict on Malaysia
Introduction
External Shocks Hamper Economic Growth Efforts
The tension between Russia and Ukraine reached its height when Russia invaded Ukraine on
24 February 2022. Despite the recovery of economic activities due to the reopening of the global
economy and improvement in labour market conditions after the COVID-19 pandemic, the Russia-
Ukraine conflict has sent economic shockwaves across the globe. The increase in raw material
prices, freight charges, labour costs, food items, fuel and transportation add to the pressure on the
cost of doing business. Against this backdrop, the growth of the global economy is projected to
moderate by 3.2% in 2022 and 2.9% in 2023.
In the global market, Russia is the largest wheat exporter, accounting for 18% of global exports
while Ukraine accounts for another 7%. Russia is also the largest exporter of natural gas (25%),
palladium (23%), nickel (22%), and fertilizers (14%). Russia also contributes to global coal exports
(18%), platinum (14%), crude oil (11%), and refined aluminium (10%) as in Figure 2.1.1.
Ukraine is the largest exporter of seed oil which is two-fifths of the global production and is mainly
used in cooking. Ukraine is also the fourth largest exporter of corn, accounting for 13% of global
exports. Likewise, Ukraine produces up to 50% of the global neon gas, which is a critical element
in the manufacture of electronic chips. The Russia-Ukraine conflict has exacerbated existing global
supply chain disruptions and caused commodity prices to rise. The breakdown of exports and
commodity price changes in Russia and Ukraine are shown in Figure 2.1.1 and 2.1.2.
FIGURE 2.1.1. Russia and Ukraine's Share of FIGURE 2.1.2. Commodity Price Changes for which
Commodity Exports, 2022 Russia and Ukraine are Key Exporters, 2022
(% share)
(% change)
60 RUSSIAN FED. 200
UKRAINE
50
Energy Metals and Food 150

40 minerals
30 100
20
50
10
0 0
Pig iron
Aluminium
Crude oil
Coal
Platinum
Palladium
Fertilizers
Natural gas
Edible oils
Wheat
Corn
Nickel
Soybean oil
Palm oil
LNG, Japan
Coal
Barley
DAP
Natural gas,
Europe
Potassium
chloride
Maize
Wheat, US
HRW
Wheat,
US SRW
Brent
Note: Data for energy and food are trade volumes, while metals and
minerals are trade values. Fertilizers are phosphate rock and potash
minerals and ammonia-based non-minerals. Edible oil are palm, soybean Note: Three-month change in commodity prices through the end of
and rapeseed oil March 2022. LNG stands for liquefied natural gas, DAP for diammonium
Source: BP Statistical Review, UN Comtrade, U.S. Department of phosphate, SRW for soft red winter and HRW for hard red winter
Agriculture, World Bank Source: World Bank
The impacts of the war are being felt not only across Europe but also worldwide because of
Russia’s and Ukraine’s significant contribution to food and energy supplies. According to IMF, global
inflation is projected at 8.3% in 2022 and 5.7% in 2023. The conflict in Ukraine is expected to keep
energy costs up while the continued global supply bottleneck hampers growth.
economic outlooK 2023 59
Chapter 2.indd 59 29/09/2022 6:21 PM

Effects of Russia-Ukraine Conflict on Malaysia
The direct impact of the Russia-Ukraine conflict on Malaysia is limited given the less significant
trade and financial relations between Malaysia and the two countries. For the first half of 2022,
trade between Malaysia and Russia amounted to RM8.8 billion (0.4%) and Ukraine RM1.5 billion
(0.1%). However, the prolonged conflict has resulted in spillover effects on Malaysia, particularly the
increase in food and fuel prices.
Poultry Price Hike
The increase in the price of chicken in Malaysia is due to the increase in the price of chicken
feed. This situation is caused by the increase in the price of the main ingredients used to produce
chicken feed, which is corn, soybeans and palm oil since the war broke out between Russia and
Ukraine. These two countries are among the main producers and exporters of corn and wheat,
which are important ingredients in the production of animal feed, including poultry feed.
The increase in the average price of chicken affects the inflation rate of the entire household
where the price of standard processed chicken was RM8.55 per kilogramme (kg) in June 2021
compared to RM10.02 per kg in June 2022. Meanwhile, the price of a chicken egg for all grades
fluctuated between RM0.40 to RM0.45 as in Figure 2.1.3.
In June 2022, the weightage of meat (including chicken) was 2.5% of the weightage of overall
food items in the Consumer Price Index (CPI) basket, where the CPI was at a high rate of 8.7%.
Meanwhile, the weightage for milk, cheese and eggs (including chicken eggs) was 0.5% of the
entire CPI basket where the CPI was at a rate of 6.7% as in Figure 2.1.4.
As a measure to curb inflation, the Government set the new ceiling retail price for standard
process chicken at RM9.40 per kg, while the new ceiling price for chicken eggs was set at RM0.45
(grade A), RM0.43 (grade B) and RM0.41 (grade C) effective 1 July 2022.
FIGURE 2.1.3. Eggs, Chicken and Cooking Oil FIGURE 2.1.4. Consumer Price Index Weightage of
Monthly Average Prices, 2021 – 2022 Items in Food & Non-Alcoholic Beverages, June 2022
RM (% share)
12 15
12.5
10 11.5
12
8
9
6
4 6
2 2.5
3 2.1
0 0.5 0.4
J F M A M J J F M A M J J F M A M J
0
10 Eggs Chicken Cooking Oil (1kg) Others Food away Meat Vegetables Oil Egg
from home
2021
2022 FOOD & NON-ALCOHOLIC BEVERAGES: 29.5
Source: Department of Statistics, Malaysia Source: Department of Statistics, Malaysia
Fuel Prices Hike
As one of the world’s largest energy exporters, the disruption of Russian oil and gas supply has
hampered global supply, resulting in a surge in global crude oil and coal prices. The increase in
the price of Brent crude oil from USD91.31 per barrel in early February to USD107.97 per barrel at
the end of July 2022 had directly impacted retail fuel prices in Malaysia. The price of RON97 petrol
Chapter 2.indd 60 29/09/2022 6:21 PM

has increased from RM3.12 per litre in early February to RM4.30 per litre at end of August 2022.
However, the subsidized fuel price is maintained at RM2.05 per litre for RON95 petrol and RM2.15
per litre for diesel.
Reduced Purchasing Power
The CPI for the period of January to July 2022 increased by 2.8% compared to the same period for
2021 by 2.3% as in Figure 2.1.5. The main impetus of the increase in the inflation rate is under the
category of food and non-alcoholic beverages which recorded an increase of 4.8% including the
price of meat (9.1%); milk, cheese and eggs (7%); and vegetables (6%). Malaysia’s average inflation
from 2021 to July 2022 is 2%. The increase in the price of goods and services in Malaysia has
caused a significant decrease in the rakyat’s purchasing power.
FIGURE 2.1.5. Consumer Price Index, January – July 2021 and 2022
MAIN GROUP WEIGHT CHANGE (%)

2021
MISCELLANEOUS GOODS & SERVICES 6.7 1.6 2022
RESTAURANTS & HOTELS 2.9 3.6
EDUCATION 1.3 1.0
RECREATION SERVICES & CULTURE 4.8 1.6
COMMUNICATION 4.8 0.0
TRANSPORT 14.6 4.2
HEALTH 1.9 0.4
FURNISHINGS, HOUSEHOLD EQUIPMENT & 4.1
ROUTINE HOUSEHOLD MAINTENANCE 3.2
HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS 23.8 1.3
CLOTHING & FOOTWEAR 3.2 -0.1
ALCOHOLIC BEVERAGES & TOBACCO 2.4 0.4
FOOD & NON-ALCOHOLIC BEVERAGES 29.5 4.8
HEADLINE INFLATION 100.0 2.8
-2 0 2 4 6 8 10 12
Source: Department of Statistics, Malaysia
Caring and Responsible Government
The Russia-Ukraine conflict has sparked one of the most significant commodity price shocks in
the past 50 years. This conflict has also made it more difficult to support economic growth while
controlling price increases. In line with the aspirations of the Malaysian Family, the Government is
determined to preserve the well-being of the rakyat by formulating and implementing robust policy
measures to reduce the impact of the crisis.
Among the measures implemented by the Government include price controls on selected goods
and services, particularly through the provision of fuel and certain food price subsidies as well
as electricity rate rebates to domestic consumers. The government has also established the
Pasukan Khas Jihad Tangani Inflasi to control the increase in the price of goods more efficiently and
effectively.
In addition, Bank Negara Malaysia’s Monetary Policy Committee has increased the Overnight Policy
Ratio (OPR) by 25 basis points in May 2022 from a record low of 1.75% and another 25 basis points
in July and September 2022 which makes the OPR 2.5% to curb inflationary pressure caused by the
depreciation of the ringgit.
Conclusion
Malaysia’s economy has experienced spillover effects from the ongoing Russia-Ukraine conflict.
This conflict has exacerbated supply chain disruptions due to lower-than-expected global economic
growth. However, the Government will always protect the rakyat who are affected by the rise in
global commodity and food prices and ensure sustainable and balanced growth.
Chapter 2.indd 61 29/09/2022 6:21 PM

table 2.2. Services Sector Performance,

Domestic Economy 2021 – 2023
(at constant 2015 prices)
Sectoral
share change
Services Sector (%) (%)
2022¹ 2021 2022¹ 20232
Main driver towards sustained growth trajectory Wholesale and retail 29.4 1.6 8.7 3.4
trade
The services sector rose by 9.2% in the first Finance and insurance 12.3 10.0 -0.6 3.1
half of 2022, driven by the wholesale and Information and 11.6 6.3 4.7 4.6
communication
retail trade; transportation and storage; food &
beverages and accommodation; real estate and Real estate and business 7.2 -11.0 18.2 6.6
services
business services; as well as information and
communication subsectors. The performance Transportation and 6.4 1.3 27.6 7.0
storage
is attributed to the improvement in tourism-
Food & beverages and 4.9 -11.0 29.5 7.8
related activities due to the reopening of accommodation
international borders, increase in consumers’
Utilities 4.7 2.6 3.4 2.4
spending supported by the one-off special
Other services 7.7 -3.3 7.8 8.5
withdrawals from the Employees Provident
Fund (EPF) and special Hari Raya Aidilfitri Government services 15.8 5.4 3.3 6.1
cash assistance to civil servants including the Services 100.0 1.9 8.2 5.0
pensioners, and increase in online
1
Estimate
transactions resulting from fast-paced 2
Forecast
Note: Total may not add up due to rounding
adoption in digitalisation across all sectors. Source: Department of Statistics and Ministry of Finance, Malaysia
The services sector is estimated to grow by
7.4% in the second half of the year, supported The wholesale and retail trade subsector
by strong growth momentum of broad-based rose by 10.4% in the first half of 2022,
economic activities. Overall, the sector is supported by strong performance in all
projected to increase by 8.2% in 2022 with segments. The robust performance of the
almost all subsectors recording positive subsector was buoyed by an increase in
growth. household spending following improvement
in the labour market and consumers’
table 2.1. Gross Domestic Product by Sector, confidence. In addition, the motor vehicles
2021 – 2023 segment contributed significantly to the first
half performance as vehicles purchase rose
share change substantially, taking advantage from the
(%) (%) sales tax exemption for passenger cars
20221 2021 20221 20232 until the end of June 2022. The subsector is
Services 58.0 1.9 8.2 5.0 expected to expand by 7.2% in the
Manufacturing 24.3 9.5 6.3 3.9 second half following improvement in all
segments especially the retail trade, in line
Agriculture 6.7 -0.2 0.1 2.3
with the increase in the number of new
Mining 6.4 0.3 2.1 1.1 convenience store outlets. The motor
Construction 3.5 -5.2 2.3 4.7 vehicles segment is also anticipated to increase
GDP 100.0 3.1 6.5 - 7.0 4.0 - 5.0 in line with the revised projection number of
vehicle sales in 2022 from 600,000 to 630,000
Estimate
(Malaysia Automotive Association, 2022). For
1
2
Forecast
Note: Total may not add up due to rounding and exclusion of import the year, the subsector is projected to record a
duties component
Source: Department of Statistics and Ministry of Finance, Malaysia significant growth of 8.7%.
62 economic outlook 2023
Chapter 2.indd 62 29/09/2022 6:21 PM

The transportation and storage subsector Ministry of Tourism, Arts and Culture. The
surged by 30.7% in the first half of 2022, popularity of the nation as a Muslim
backed by the significant growth of all travel destination is reflected in the Global
segments following a more vigorous highway, Muslim Travel Index 2022 of which Malaysia
port and airport activities. The traffic volume continues to maintain in the top position
of toll highways increased by 59.8% to 803.2 for four consecutive years (CrescentRating,
million vehicles in the first half of 2022, mainly 2022).
due to the normalisation of interstate travel
especially during festive seasons and school The real estate and business services
holidays amid the transition to endemicity. subsector registered a turnaround of
The growth of total cargo and container 15.4% in the first half of 2022, supported
handled in ports was supported by strong by improved activities in leasing and
external demand with total trade increased renting of properties as well as higher
by 28.2% to RM1,354.9 billion. The subsector’s demand for professional services,
notable performance was also supported particularly legal and accounting activities.
by a substantial increase of 597.4% to 21.2 The subsector is expected to continue its
million air passenger traffic at airports during growth momentum by 21.2% in the second
the six-month period. In the second half of half due to robust improvement in business
2022, the subsector is expected to rebound by and trade activities. The growth momentum
24.8%, mainly attributed to the land transport is also supported by the Government’s
segment following continuous increase in initiatives such as Keluarga Malaysia Home
highway traffic volume as well as improve Ownership Initiative (i-MILIKI) and Malaysia
in ridership of rail transport. In addition, Housing Financing Initiative (i-Biaya). The
the water transport segment is projected to i-MILIKI offers 100% stamp duty exemption
continue contributing to the subsector’s growth for first-time homeowners on the purchase of
primarily through high container and cargo properties valued at up to RM500,000 while
shipment activities. The air transport segment the i-Biaya facilitates access to home financing
is expected to record a strong growth in for households in the bottom 40% of income
tandem with higher air passenger traffic amid group (B40) and households in the middle
gradual resumption of international flights. 40% of income group (M40) groups. For the
Overall, the subsector is projected to increase year, the subsector is anticipated to grow by
by 27.6% in 2022. 18.2%.
The food & beverages and accommodation The information and communication
subsector is projected to turn around subsector expanded by 6.1% in the first half
significantly by 29.5% in 2022 following the of 2022, supported by telecommunication
expansion in all segments. The subsector segment following a higher digital usage
rebounded by 29.6% in the first half of 2022 among businesses and individuals and
due to substantial recovery in hotel occupancy increased subscription of services offered by
rate and patronage at eateries, mainly telecommunication companies. The subsector
attributed to the increase of tourist arrivals is projected to increase by 3.3% in the second
to 2.1 million. The subsector is expected half of the year, supported by sustained
to further increase by 29.5% in the second high usage of the e-commerce services and
half of the year attributed to the continuous increased subscriptions to media streaming
expansion in tourism-related activities. The such as sport packages in conjunction with the
favourable outlook is in line with the revised 2022 Commonwealth Games and 2022 FIFA
projection of 9.2 million tourist arrivals and World Cup campaign. Therefore, the subsector
RM26.8 billion tourist receipts in 2022 by the is anticipated to rise by 4.7% in 2022.
Chapter 2.indd 63 29/09/2022 6:21 PM

FIGURE 2.2. Selected Indicators for the Services Sector
Tourist Arrivals and Receipts Volume Index of Wholesale & Retail Trade
(2015 = 100)
RM billion Million Index
120 TOURIST RECEIPTS (RM BILLION)
42 200
WHOLESALE & RETAIL TRADE
TOURIST ARRIVALS (MILLION) RETAIL TRADE
WHOLESALE TRADE
100 35 MOTOR VEHICLES
160
80 28
120
60 21
80
40 14
40
20 7
0 0 0
2018 2019 2020 2021 20221 J A J O J A J O J A J
2020 2021 2022
Container Handling and Ship Calls Information and Communication Index

Million Units Index (2015 = 100)
30 TEUS 60,000 200 INFORMATION AND COMMUNICATION INDEX
COMPUTER AND INFORMATION SERVICE INDEX
SHIP CALLS (RIGHT SCALE) TELECOMMUNICATIONS INDEX
PUBLISHING AND
25 50,000 BROADCASTING ACTIVITIES
160
INDEX
20 40,000
120
15 30,000
80
10 20,000
40
5 10,000
0 0 0
2018 2019 2020 2021 20221 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2018 2019 2020 2021 2022
Air Passengers and Cargo Electricity Consumption

Million tonne Million Million kilowatt-hours
1.5 150 18000 DOMESTIC AND PUBLIC LIGHTING
AIR CARGO
PASSENGER TRAFFIC (RIGHT SCALE) INDUSTRIAL, COMMERCIAL AND MINING
15000
1.2 120
12000
0.9 90
9000
0.6 60
6000
0.3 30
3000
0.0 0 0
2018 2019 2020 2021 20221 J A J O J A J O J A
2020 2021 2022
1
Estimate
Source: Department of Statistics, Malaysia; Malaysia Airports Holdings Berhad; Malaysia Tourism Promotion Board; Senai International Airport;
and seven major ports (Bintulu, Johor, Klang, Kuantan, Kuching, Pulau Pinang and Tanjung Pelepas)
Chapter 2.indd 64 29/09/2022 6:21 PM

The utilities subsector recorded an increase of Manufacturing Sector

3.8% in the first half of 2022 and is anticipated
to improve further by 3% in the second half. Broader base of manufacturing sector
For the whole year, the subsector is expected
to expand by 3.4% following a higher electricity The manufacturing sector continued to
consumption by industrial, commercial and expand, recording a growth of 7.9% in the
domestic segments attributed to the reopening first half of 2022, supported by both the
of all economic sectors and resumption of export- and domestic-oriented industries. The
social activities. export-oriented industries, which constitute
68.9% of the manufacturing sector, grew by
In the first half of 2022, the finance and 7.1%, while the domestic-oriented industries
insurance subsector declined marginally by increased by 9.7%. The sector is expected
1.2% due to negative growth in Financial to improve further in the second half with
Intermediation Services Indirectly Measured an expansion rate of 4.9%, driven by higher
(FISIM) and fee-based income following low output across all industries, particularly
interest rate environment. Similarly, the from the E&E, transport equipment as well as
insurance segment experienced a contraction metal-related segments.
due to the higher claims and lower return on
investments. In the second half, the Within the export-oriented industries, the
subsector is projected to record a marginal E&E segment is anticipated to be driven by
increase of 0.1% attributed to the expected strong demand from the global semiconductor
increase in finance segment of 2.9% following market, especially for chip products. The
the improvement in FISIM. However, the chemicals segment is projected to increase
insurance segment is anticipated to continue
contracting by 7.4%. Overall, the subsector is
anticipated to register a negative growth FIGURE 2.3. Output of Manufacturing Sector
of 0.6%. (% change)
The other services subsector rebounded %

by 7.7% in the first half of 2022 following 70
improvement in private education and health 60
segments in line with a higher enrolment in 50
private colleges and universities as well as 40
strong demand for private healthcare services. 30
The rebound was also supported by the 20
recovery in sports and recreational activities
10
as the country transitions into normalcy. The
0
subsector is expected to grow by 7.8% in
-10
the second half of the year, driven by strong
-20
demand for private education and healthcare
-30
services as well as continuous effort to
promote health tourism. Overall, the subsector -40
J A J O J A J O J A J
is anticipated to turn around by 7.8% in 2022. 2020 2021 2022
Meanwhile, the government services subsector MANUFACTURING PRODUCTION INDEX
grew by 5.5% in the first half of 2022 and INDUSTRIAL PRODUCTION INDEX
expected to increase by 1.3% in the second

half. For the year, the subsector is forecast to Source: Department of Statistics, Malaysia
grow at a rate of 3.3%.
Chapter 2.indd 65 29/09/2022 6:21 PM

table 2.3. Manufacturing Indices by Export- and Domestic-Oriented Industries,

January – July 2021 and 2022
(2015 = 100)
indeX change share

(%) (%)
2021 2022 2021 2022 2021 2022
Export-oriented industries 128.9 137.9 13.6 7.0 70.0 68.9
Manufacture of vegetable and animal oils and 92.7 88.6 -14.7 -4.5 4.1 3.6
fats
Manufacture of textiles 111.6 118.2 18.1 6.0 0.8 0.7
Manufacture of wearing apparel 110.1 116.4 4.4 5.7 0.8 0.8
Manufacture of wood and products of wood 107.7 122.5 13.1 13.7 1.8 1.9
and cork, except furniture; manufacture of
articles of straw and plaiting materials
Manufacture of coke and refined petroleum 111.6 116.8 12.1 4.6 12.4 11.9
products
Manufacture of chemicals and chemical 116.5 122.4 9.1 5.1 8.8 8.5
products
Manufacture of rubber products 249.3 196.1 49.3 -21.3 6.6 4.7
Manufacture of plastics products 125.0 131.5 15.3 5.2 3.4 3.2
Manufacture of computer, electronics and 139.9 164.7 16.5 17.7 23.0 24.9
optical products
Manufacture of electrical equipment 130.6 147.0 12.5 12.6 3.4 3.5
Manufacture of machinery and equipment n.e.c. 138.0 146.2 9.4 5.9 3.5 3.4
Manufacture of furniture 119.5 136.9 8.8 14.5 1.5 1.6
Domestic-oriented industries 112.8 127.4 8.4 12.9 30.0 31.1

Manufacture of food processing products 142.7 156.7 8.7 9.8 6.2 6.3
Manufacture of beverages 110.5 131.6 11.1 19.0 0.8 0.9
Manufacture of tobacco products 82.7 109.0 1.6 31.9 0.5 0.6
Manufacture of leather and related products 122.9 145.9 22.0 18.7 0.2 0.2
Manufacture of paper and paper products 125.8 137.6 14.5 9.4 1.7 1.7
Printing and reproduction of recorded media 111.3 119.0 7.3 7.0 1.2 1.2
Manufacture of basic pharmaceuticals, medicinal 151.0 162.5 14.5 7.6 0.7 0.7
chemical and botanical products
Manufacture of other non-metalic mineral 97.4 109.0 5.9 11.9 3.4 3.5
products
Manufacture of basic metals 107.2 118.5 3.7 10.5 3.0 3.0
Manufacture of fabricated metal products, 103.2 111.5 9.2 8.0 4.6 4.6
except machinery and equipment
Manufacture of motor vehicles, trailers and 114.0 145.1 11.4 27.2 4.3 5.0
semi-trailers
Manufacture of other transport equipment 90.7 97.8 5.6 7.8 1.3 1.3
Other manufacturing 102.9 116.7 10.6 13.4 0.9 0.9
Repair and installation of machinery and 116.4 129.8 3.2 11.5 1.1 1.1
equipment
Manufacturing 123.6 134.4 12.0 8.8 100.0 100.0

Source: Department of Statistics and Ministry of Finance, Malaysia
Chapter 2.indd 66 29/09/2022 6:21 PM

attributed to higher demand for industrial the livestock and other agriculture subsectors
products especially for digital-related usage is expected to provide further impetus to the
following greater adoption of advanced sector’s performance. However, growth of
technology. Meanwhile, within the domestic- the rubber subsector is forecast to remain
oriented industries, all segments are expected negative following anticipation of decreased
to grow further, mainly driven by the tapping activity towards end of the year due
transport-, food- and metal-related segments. to unfavourable weather conditions as well
Stronger demand for transport-related as low demand for natural rubber from China
segments is backed by the normalisation of due to lockdowns in certain cities following
industrial and business activities. Food-related zero-COVID policy. For the year, the agriculture
segments are expected to benefit from the sector is estimated to turn around by 0.1%,
potentially higher private consumption and supported by positive growth in the oil palm,
improvement in tourism industry. In addition, livestock and fishing subsectors.
the rebound in construction sector is
projected to result in a better performance Mining Sector
for metal-related segment. Overall, the
manufacturing sector is forecast to expand Crude oil production recovers
by 6.3% in 2022.
The mining sector declined by 0.8% in the
Agriculture Sector first half of 2022 due to lower production of
crude oil and condensates following temporary
Recovery in the oil palm subsector drives growth shutdown of several plants for maintenance
purposes. Nevertheless, the mining sector is
The agriculture sector registered a contraction expected to recover in the second half of the
of 1.2% in the first half of 2022 attributed year to record a growth of 5.1%, driven by
to lower output in most subsectors due to higher natural gas output from existing and
prolonged labour shortage. Nevertheless, the new gas fields. The improved production of
sector is projected to turn around by 1.3% crude oil and condensates, especially with the
in the second half of the year supported resumption of a major oil field operation in
by improvement in crude palm oil (CPO) Sabah also supported the sector's recovery.
production following expectation of an increase Global energy prices which are projected
in mature planted areas and improvement in to remain high, bode well for the sector to
labour market. In addition, a rise in output of increase its output. Brent crude oil price is
expected to average at USD100 per barrel for
table 2.4. Value-added in the Agriculture Sector, the year following the pent-up demand arising
2021 – 2023 from the transition into the endemic phase and
(at constant 2015 prices) supply disruption due to prolonged geopolitical
tension in Eastern Europe. Overall, the mining
share change sector is expected to record a growth of 2.1%
(%) (%) in 2022.
20222 2021 20222 20233
Oil palm 35.6 -5.6 1.5 3.2 Construction Sector
Rubber 1.9 -8.4 -15.7 2.8
Strong domestic activities to spur growth
Livestock 16.8 3.2 0.7 2.7
Other agriculture¹ 29.0 5.8 -0.8 1.9 The construction sector contracted by 2.1%
Fishing 11.7 -0.6 3.3 1.4 in the first half of 2022, mainly due to lower
Forestry and 5.0 0.9 -5.3 -2.3 construction activities in civil engineering and
logging residential buildings subsectors. In contrast,
Agriculture 100.0 -0.2 0.1 2.3 non-residential buildings and specialised
construction activities subsectors registered
1
Including paddy, fruits, vegetables, coconut, tobacco, tea, flowers, a growth during the same period, in line
pepper, cocoa and pineapple
2
Estimate with expansion in business activities, albeit
3
Forecast
rising prices of construction-related materials.
Source: Department of Statistics and Ministry of Finance, Malaysia The sector is expected to turn around in the
Chapter 2.indd 67 29/09/2022 6:21 PM

second half with an expansion rate of are anticipated to increase demand for
6.9%, supported by positive growth in all more industrial buildings. In addition, the
subsectors. Improvement in private investment acceleration of major infrastructure projects
and robust domestic economic activities will continue to drive the sector’s performance.
FIGURE 2.4. Supply Indicators of Residential FIGURE 2.5. House Price Index
Property (% change)
Units Units %
('000) ('000) 10
6,500 480
8
6,000
460 6
5,500
4
440
5,000
2
4,500 0
420
4,000 -2
400
-4
3,500
-6
3,000 380 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2018 2019 2020 2021 2022
2018 2019 2020 2021 2022
MALAYSIA JOHOR
EXISTING STOCK PULAU PINANG
KUALA LUMPUR
INCOMING SUPPLY
RIGHT SCALE SELANGOR
PLANNED SUPPLY
Source: National Property Information Centre Source: National Property Information Centre
FIGURE 2.6. Supply Indicators of Non-Residential Property
Incoming Supply Occupancy Rate

Square meter
Units ('000) %
50,000 3,000 86
84
40,000 2,400
82
30,000 1,800
80
20,000 1,200
78
10,000 600
76
0 0 74
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2018 2019 2020 2021 2022 2018 2019 2020 2021 2022
SHOPS OFFICE SPACES OFFICE SPACES

RIGHT SCALE
INDUSTRIAL RETAIL SPACES RETAIL SPACES
Source: National Property Information Centre
Chapter 2.indd 68 29/09/2022 6:21 PM

The development of residential property to banks via Skim Jaminan Kredit Perumahan
is expected to remain active supported by (SJKP) as well as housing projects for low
continuous implementation of measures income group with an allocation of RM1.5
under the Budget 2022 including a total billion. In 2022, the sector is projected to
government guarantee of up to RM2 billion rebound by 2.3%.
feature article 2.2
Strengthening Construction Sector towards a Sustainable Economic

Growth
Introduction
The construction sector is vital in the development of Malaysia’s economy. In line with Vision
2020 and the Sixth Malaysia Plan, Malaysia has experienced a robust construction sector during
the period from 1991 to 2000 with an average annual growth rate of 7.2%, as shown in Figure
2.2.1. The sector contributed to the national GDP with an annual average share of 3.9% for the
period from 1991 to 2020. Although the contribution is relatively small, it provides a valuable
multiplier effect to the aggregate economy attributed to its extensive backward and forward
linkages with other sectors (Khan et al., 2014). Thus, as a developing nation, the sector’s
contribution remains significant in ensuring a sustainable economic growth. This article highlights
the Government’s initiatives in strengthening the role of the construction sector to support the
economy especially during economic crises; provides an analysis on inter-sectoral linkages of
construction sector1 as well as how the change in productivity of each subsectors impacts the
related economic indicators; identifies issues and challenges faced by the sector as well as way
forward for the sector.
FIGURE 2.2.1. Performance of Malaysia’s Construction Sector, 1981 – 2020

(% average growth and share to Gross Domestic Product at constant prices)
%
8
7.2
7
6
5.3
5
4.3 4.3
4.1
4
3.5 3.5 3.3
3
0
1981 – 1990 1991 – 2000 2001 – 2010 2011 – 2020
GROWTH
SHARE TO GROSS DOMESTIC PRODUCT
1
Based on 124 industries in the 2019 Input-Output Table
Chapter 2.indd 69 29/09/2022 6:21 PM

Construction Sector’s Evolution
A series of economic crises has caused Malaysia’s construction sector to perform inconsistently
over the last four decades as shown in Figure 2.2.2. The commodities shock in 1985/1986, Asian
Financial Crisis (AFC) in 1997/1998, Global Financial Crisis (GFC) in 2008/2009 and the COVID-19
pandemic had brought significant repercussions to the sector and the economy as a whole. The
sector was badly affected either from the cancellation or postponement of major construction
projects. Given the sector’s contribution and its significant spillover effects to other sectors of
the economy, the Government had taken actions to mitigate the negative impacts of the crises,
particularly by initiating public infrastructure projects and providing policy support to rejuvenate
the sector.
FIGURE 2.2.2. Gross Domestic Product and Construction Sector Growth
(%)
40
30 Commodities Asian Financial Global COVID-19

Shock Crisis Financial Crisis Pandemic
20
10
-10
-20
-30
02
04
06
08
10
12
14
16
18
20
80
82
84
86
88
90
92
94
96
98
00
20
20
20
20
20
20
20
20
20
20
19
19
19
19
19
19
19
19
19
19
20
CONSTRUCTION SECTOR
GROSS DOMESTIC PRODUCT
The commodities shock crisis in 1985/1986 had heavily impacted Malaysia’s fiscal position, which
caused the Government to reprioritise public development expenditure to help strengthen the
various affected sectors, including construction. While reviving the economy from the crisis,
the Government prioritised infrastructure projects and promoted private sector investment in
developing low-cost housing to relocate squatters from prime land areas to the designated
residential areas. This was also in line with the country’s transition towards an industrialised
nation. In addition, the liberalisation of landed property foreign ownership regulations in 1986 had
encouraged foreigners to own commercial and residential buildings in Malaysia, thus contributing
to an increase in construction activities.
The construction sector was again badly affected during the AFC, contracting significantly by
24% in 1998 from a growth of 10.6% in 1997. As a move to revive the economy, the Government
launched the National Economic Recovery Plan to respond to the crisis. Among the measures
undertaken include the setup of three major entities namely Danaharta, Danamodal and Corporate
Debt Restructuring Committee, aimed at easing liquidity in the private sector, which bode well in
supporting the entire construction ecosystem. In addition, Infrastructure Development Fund worth
RM5 billion was established to finance infrastructure projects including integrated transportation
systems, highways and ports. As a result, the sector’s performance had improved by almost 20
percentage points to record a smaller negative growth of 4.4% in 1999.
Chapter 2.indd 70 29/09/2022 6:21 PM

About 10 years after the AFC, the world experienced another major crisis in the form of GFC. Being
an open economy, Malaysia was also affected by the crisis. In cushioning the impact of global
economic slowdown, the Government had again implemented fiscal stimulus packages, among
others, aimed at supporting industries related to transportation, education, healthcare, public
utilities and housing, whereby construction was the major element involved. Due to swift response
from the Government, the sector’s growth accelerated from 4.4% in 2008 to 6.2% in 2009 and
11.4% in 2010.
Subsequently, in addressing the impact of COVID-19 pandemic, various stimulus packages were
introduced to revive the domestic investment activities mainly in the construction sector.
Under these packages, new allocations were provided for projects such as improving roads
and upgrading and repairing dilapidated schools, which are over and above the continued
implementation of projects under the existing 2020 annual budget. In addition, the ongoing
mega projects such as Mass Rapid Transit (MRT) Putrajaya Line and Light Rail Transit Line 3
(LRT3) were also given priority due to its high multiplier effects to the economy. Thus, the
sector’s growth recorded a small contraction of 5% in 2021 compared to significant deterioration
of 19% in 2020.
The construction sector in Malaysia has also played a major role in accumulating the nation’s
capital stock such as buildings, roads, railways, ports and airports. Accordingly, the Harrod-Domar
model of economic growth highlights that net investment, which is defined as the change in capital
stock is necessary for economy to grow (Domar, 1947; Harrod, 1948). United Nations (1990) also
indicates that infrastructural development was an essential part of economic development in Asia
and does appear to lead economic growth by improving the capacity as well as the efficiency of the
economy.
Moreover, a sustainable construction sector can ensure both social prosperity and economic
stability (Alaloul et al., 2021). Siong H.C. (2006) also highlighted the significance of urban
development in Malaysia that can provide a balanced ecosystem benefitting the local society
and economy as can be seen in the development of Putrajaya. The Federal capital is an
example of a successful integrated urban development project in Malaysia which combines the
development of government institutions with a balanced ecosystem consisting of accompanying
amenities and infrastructure as well as commercial and residential development. This mega project
has significant spillover effects on the economy including creating new settlements, increasing
household income, rising property value, providing jobs and boosting the tourism industry.
Inter-sectoral Linkages
The construction sector’s linkages to other economic sectors are vital as they encompass both
backward and forward relations with other areas, despite their small contribution to the GDP. The
sector requires various sources of inputs from the economy, creating backward linkages. Similarly,
the output from the construction sector is channelled back to the sector as well as to other
sectors resulting in forward linkages. Bon (1988) highlights that the input–output analysis has
been considered as an ideal framework to study the direct and indirect resource utilisation in the
construction sector and its interdependence with other sectors. For example, bricks (manufacturing
sector) are used to construct a commercial lot (construction sector) which will be used as a
restaurant (services sector).
The strong relationship between economic sectors can be seen through the calculation of
power and sensitivity of dispersion indices. The power and sensitivity of dispersion indices are
produced through normalisation of backward and forward linkage respectively (DOSM, 2022).
Both indices are measured to identify potential sectors in the economy. Sector that has an
index value of more than one has more propensity to provide bigger output and has greater
influence on the economy. Using the 2019 Input-Output (IO) Table, Ministry of Finance (MoF)
estimates that the construction sector has a power of dispersion index of more than one and
the largest compared to the other economic sectors. Meanwhile, the sensitivity of dispersion index
for the construction sector has a value of less than one. The power and sensitivity of dispersion
indices between the construction sector and other economic sectors are shown in Figure 2.2.3.
Chapter 2.indd 71 29/09/2022 6:21 PM

FIGURE 2.2.3. Power and Sensitivity of Dispersion Indices of Construction Sector and Other Sectors
Sensitivity of
dispersion index
1.3
Mining
1.2
Agriculture
1.1 Manufacturing
Services
1.0
0.9
0.8 Construction
0.7
0.6
0.5
0.4
0.6 0.7 0.8 0.9 1.0 1.1 1.2 1.3
Power of dispersion index
Source: Ministry of Finance, Malaysia (estimates)
Based on the 2019 IO Table, four out of 124 industries fall under the construction sector, namely
residential buildings, non-residential buildings, civil engineering and specialised construction
activities subsectors. The MoF’s analysis using the Dynamic Computable General Equilibrium model
estimates that increased productivity in the construction subsector will contribute to economic
growth due to high inter-sectoral linkages as shown in Table 2.2.1. At the same time, industries
such as mining of metal ores; builders’ carpentry and joinery; food crops; and wiring devices,
electric lighting equipment and other electrical are also expected to benefit from the inter-sectoral
linkages as shown in Figure 2.2.4.
table 2.2.1. Implication of a 1% Improvement in Productivity of Construction Subsectors to

Economic Indicators
Baseline deviation
(percentage point)
specialised
residential non-residential
civil engineering construction
buildings buildings
activities
Real GDP 0.01 0.01 0.00 0.01
Investment 0.05 0.02 0.04 0.03
Exports 0.01 0.00 0.00 0.00
Imports 0.01 0.01 0.01 0.01
Chapter 2.indd 72 29/09/2022 6:21 PM

FIGURE 2.2.4. Biggest Winners from Productivity Improvement in Construction Subsectors
Civil Residential Non-Residential Specialised

Engineering Buildings Buildings Construction Activities
Wiring devices, electric
Builder’s carpentry
Mining of metal ores Food crops lighting equipment and
and joinery
other electrical
Electricity distribution
Highway operation Refractory, clay, porcelain
Vegetables & control apparatus,
services, bridge and tunnel and ceramic products
batteries
Non-metallic
Water Other agriculture Mining of metal ores
mineral products
Quarring of stone,
Rental and leasing Poultry farming Food crops
sand and clay
Other private Quarrying of stone, Quarrying of stone,

Vegetables
Services sand and clay sand and clay
Issues and Challenges
Rising Cost of Doing Business
Construction input is susceptible to the rising cost of building materials and this has become a
major concern to the sector. As the sector relies heavily on cash flow position for their operation,
the increasing cost of raw materials will greatly affect firms’ cash flow and their long-term
sustainability. Price materials are volatile and easily affected by factors such as inflation pressure,
supply chain disruptions and poor planning and scheduling. Musarat et al. (2020) highlights that
inflation rate significantly influences the price deviation of construction materials. The rising cost
coupled with requirements for substantial investment, pose a big challenge for a new player to
enter the industry, especially for small and medium companies.
Time Constraint
Time management is a crucial factor to the sector’s performance. Any occurrences of project
timeline rescheduling, time overruns and other delays have negative implications and adversely
affect the construction progress. According to Zamani et al. (2021), changes to projects’ timelines
due to the shortened duration of construction activities and lengthy process for approvals by
related authorities besides unforeseen circumstances, have affected the project operation. Frequent
change in conditions and requirements may lead to disruption in achieving time and cost effective
of the sector.
Low Labour Productivity
Low labour productivity is one of the main challenges faced by the Malaysian construction sector
as the nation relies heavily on a large foreign labour workforce (Najib et al., 2019). High reliance
on foreign workers may have an adverse impact towards productivity and quality levels since most
Chapter 2.indd 73 29/09/2022 6:21 PM

of the foreign workers were unskilled, which leads to low productivity of construction output.
Similarly, Wong et al. (2020) highlights that the construction sector in Malaysia has recorded an
unsatisfactory productivity level, mainly due to a large proportion of the construction workforce
consisting of low-skilled foreign workers.
Way Forward
Acceleration of Digitalisation
Malaysia’s construction business models and operations are mainly reliant on manual labour and
low technology adoption. World Bank (2018) highlights that Malaysians use digital technologies
widely, but digital adoption by Malaysian businesses still lags behind the global average with only
29% of businesses having web presence while a meagre 5.2% engaged in e-commerce in 2015.
Notwithstanding that the sector is more labour intensive, the usage of suitable technologies and
digitalisation products such as building information modelling (BIM), industrialised building system
(IBS), internet of things (IoT) and big data analytics (BDA) will drive the sector to better manage
and control the construction process. Zhang et al. (2018) advocates BIM as a tool to achieve the
principles of lean construction in order to improve the coordination and collaboration of work
teams, enhance the project quality and reduce waste towards higher productivity.
Embrace New Practices
Malaysia is moving towards automation in construction sector and encouraging the adoption
of environmental, social and governance (ESG) policies into business practices. This shift will
ensure businesses competitiveness and sustainability in the long run. The enhancement of digital
construction was enshrined in Malaysia’s Construction 4.0 Strategic Plan (2021 – 2025). The five-
year Plan comprises of 12 emerging technologies as shown in Figure 2.2.5, which is expected to
boost the construction sector in line with the Fourth Industrial Revolution (4IR). This Plan has
FIGURE 2.2.5. 12 Emerging Technologies in Construction 4.0 Strategic Plan 2021 – 2025
Prefabrication and Building Information Autonomous Augmented Reality

Modular Construction Modelling (BIM) Construction and Virtualization
Cloud and Realtime 3D Scanning and Big Data and

Internet of Things
Collaboration Photogrammetry Predictive Analytic
3D Printing and
Additive Advanced Building
Manufacturing Materials Blockchain Artificial Intelligence
Source: Construction Industry Development Board
Chapter 2.indd 74 29/09/2022 6:21 PM

outlined a framework to improve the capabilities of the construction sector through the four
enablers identified, namely people, integrated technologies, economy and governance. Hence,
construction projects are expected to be implemented efficiently through value optimisation and
waste minimisation. Ferrero-Ferrero et al. (2016) highlights that a company’s commitment and
effectiveness can be measured through ESG consistency towards creating competitive advantage.
Development of workers’ skills
Skills and expertise are needed for the execution of technical construction methods as the sector
is growing towards automation and digitalisation. Ibrahim et al. (2010) outlines that human
resources and skills in construction sector are the main challenges to fulfil rapid change of demand
in the industry. Hence, the Malaysian construction sector should invest in building capacity for
workers and professionals to improve the capability, competitiveness and operational performance.
According to the Construction 4.0 Strategic Plan, the construction technology transformation
requires companies to invest in talent development to increase productivity and overall sector
performance.
Conclusion
The construction sector plays a significant role to Malaysia’s economy particularly through
its linkages to other sectors of the economy. In view of this, the Government prioritises
construction sector through various initiatives for the sector to recover from the impact of
economic crises. The issues and challenges addressed by the sector thus far, have strengthened
the sector to be more resilient. The adoption of automation, digitalisation and ESG policies as well
as creating relevant skills and expertise would transform the sector to keep abreast with emerging
demands in the economy. Thus, the importance of boosting the sector’s development and growth
will not only contribute to the GDP, but also gear the industrial players to become major global
competitors.
Chapter 2.indd 75 29/09/2022 6:21 PM

Domestic Demand Private consumption grew by 11.5% in the

first half of 2022 buoyed by rising household
Domestic demand continues to fuel the recovery income following a broad-based economic
momentum recovery, improved labour market
conditions with more job opportunities,
Domestic demand continued to drive revision of the minimum wage to RM1,500
growth, expanding at 8.6% in the first as well as higher income in commodity-related
half of 2022, mainly supported by pent- industry. The reopening of international
up demand in line with the transition to borders has also contributed to the strong
endemicity and reopening of international consumption performance mainly through an
borders, allowing for acceleration in upbeat in tourism-related activities as shown
economic activities. Domestic demand is by the increasing trend of tourist arrivals and
expected to expand further at 4.1% in the receipts since April 2022. In supporting the
second half and grow by 6.3% for the whole labour market, the Government continued its
year, contributing 5.8 percentage points to policy measures which include the wage
the GDP growth. The private sector is subsidy programme, JaminKerja, Malaysia
anticipated to continue its role as the engine Short-Term Employment Programme (MySTEP)
of growth and expand at 7.5% in 2022 with as well as upskilling and reskilling initiatives.
the share to GDP at 75.1%, propelled by The special EPF withdrawal in April 2022 had
both consumption and investment spending. also provided an additional boost to private
Simultaneously, public sector expenditure is spending, especially among contributors who
expected to grow by 1.3% with the share to are significantly impacted by the COVID-19
GDP at 17.4%. pandemic. In addition, the growth in private
consumption was reflected by sales of
passenger cars which grew 31.2% in the first
half of 2022, mainly induced by the sales tax
table 2.5. Gross Domestic Product by Aggregate exemption on purchase of passenger cars.
Demand, 2021 – 2023
Other consumption indicators such as imports
of consumption goods and consumption credit
share change
disbursed also registered an increase of 21.1%
(%) (%) and 31.9%, respectively.
20222 2021 20222 20233
Domestic demand 92.5 1.7 6.3 5.1 In the second half of 2022, private
Private expenditure 75.1 2.0 7.5 5.8 consumption is expected to grow by 6%
Consumption 60.0 1.9 8.7 6.3 in line with steady recovery in the labour
Investment 15.1 2.6 3.0 3.7 market through lower unemployment rate
Public expenditure 17.4 0.6 1.3 2.0 as well as increase in salaries and wages;
Consumption 13.1 5.3 1.0 2.0 and greater economic and social activities
Investment 4.3 -11.3 2.2 2.1 including tourism-related activities. In addition,
External sector1 6.2 -4.1 10.0 3.2 the Government measures particularly cash
Exports 70.6 15.4 8.8 1.6 assistance for the B40 households and
Imports 64.4 17.7 8.7 1.4
continuation of consumption subsidies on
GDP 100.0 3.1 6.5 - 7.0 4.0 - 5.0
selected goods and services are expected to
1
Goods and non-factor services sustain household spending while minimising
Estimate
the impact of rising cost of living. Thus, private
2
3
Forecast
Note: Total may not add up due to rounding and excluding change in
stocks component
consumption is estimated to expand by 8.7% in
Source: Department of Statistics and Ministry of Finance, Malaysia 2022.
Chapter 2.indd 76 29/09/2022 6:21 PM

In the first half of 2022, private investment projects, mainly in the services sector
increased 3.3% as economic activities resumed (RM78 billion). Approved foreign investment
following the ease of containment measures continued to lead with a value of
and opening up of international borders. RM87.4 billion of the total approved
Indicators such as imports of intermediate investment, primarily from China
goods and imports of capital goods (RM48.6 billion), Germany (RM9 billion)
expanded by 32.8% and 12.4%, respectively, and Singapore (RM6 billion).
signalling improving performance of
investment. Furthermore, Malaysia remains Public investment rebounded 1% in
an attractive investment destination and the first half of 2022, mainly driven by
continues to receive encouraging foreign public corporations’ higher capital outlays.
investments following the growing external Public investment is projected to expand by
demand and ramped up in the manufacturing 3.1% in the second half and 2.2% for the
and services sectors. The foreign direct whole year. The Federal Government’s
investment (FDI) continued to surge in the first development expenditure (DE) continues
six months of 2022 to reach a net inflow of to prioritise investment with high
RM41.7 billion compared with RM20.2 billion in multiplier impact to the economy. The DE
the corresponding period in 2021. The inflows will be channelled mainly for projects which
were mainly in the manufacturing, financial promote sustainable development, enhance
and insurance/takaful activities as well as the living standards of people, accelerate
wholesale and retail sectors. technology adoption and innovation as well
as improve transport infrastructure, in tandem
In the second half of the year, private with the objectives outlined in the Twelfth
investment is anticipated to grow by Malaysia Plan, 2021 – 2025 (12MP).
2.5% in line with the Leading Index which
exceeded the 100-point threshold and Public consumption registered a growth of
recorded 109.5 points in July 2022, signalling 4.7% in the first half of 2022, attributed to
greater confidence in the coming months. spending on emoluments as well as supplies
Overall, private investment in 2022 is and services. For the year, public consumption
expected to increase by 3% supported by is projected to expand by 1% in line with
continued capital spending, especially in the continuous effort by the Government to
the manufacturing and services sectors. optimise operating expenditure while ensuring
The Government will continue to promote efficient public service delivery.
conducive business environment as well as
facilitate the private sector in accelerating Gross National Savings (GNS) is anticipated
the adoption of digitalisation and intensifying to post a growth of 6.7% in 2022, in line with
innovation activities. Guided by the the expected increase in nominal national
National Investment Aspirations (NIA), income at 9.2%. Subsequently, the GNS is
continued efforts will be intensified to envisaged to remain significant at RM429.9
secure more high quality and high impact billion or 26.2% of gross national income (GNI).
projects which will create high-income Total investment expenditure is projected to
jobs. This is reflected by the total approved rise by 10.1% to RM379 billion or 23.1% of
investment of RM123.3 billion by the GNI. Therefore, the savings-investment gap is
Malaysian Investment Development expected to record a surplus of RM50.8 billion
Authority (MIDA) during the first six months or 3.1% of GNI, enabling Malaysia to finance
of 2022 which involved new projects as well its economic activities primarily from domestic
as expansion and diversification of existing sources.
Chapter 2.indd 77 29/09/2022 6:21 PM

FIGURE 2.7. Savings-Investment Gap prospects. The highest proportion of CE will

(% of GNI) continue to be contributed by the services
% % (63.1%) and manufacturing (23.1%) sectors,
30 15 particularly in wholesale & retail trade, food
& beverage and accommodation subsectors
as well as electrical, electronic and optical
products.
25 10
Gross operating surplus (GOS)3 grew by 14%
and recorded a share of 62.9% to GDP in 2021.
The capital owners have profited a double-digit
income growth of 24.5% from the economic
20 5 expansion as the selected industries have
benefitted significantly from higher commodity
prices. Meanwhile, the mixed-income earned
by self-employed, unincorporated enterprises
and others recorded a contraction of 6.5%
15 0
attributed to a lesser employment and
2019 2020 2021 20221 20232
income prospects for these groups during the
GROSS NATIONAL SAVINGS pandemic. Overall, the share of GOS to GDP is
TOTAL INVESTMENT3 expected to further improve to 64.4% in 2022
SAVINGS-INVESTMENT GAP (RIGHT SCALE)
supported by better economic performance.
1
However, as businesses are yet to regain full
Estimate
2
Forecast recovery post-pandemic, mixed-income for the
3Including change in stocks
self-employed group is projected to expand at
a slower pace of 0.7% compared to 18.4% for
capital owners.
Income
Taxes less subsidies on production and
Reasonable sharing of national income is still a imports4 recorded a lower contraction of 8%
challenge in 2021 attributed to a positive growth in
income received from taxes of 5.8%, while
The creation of more employment expenditure on subsidies and incentives
opportunities attributed to the normalisation increased by 28.7%. Almost half of these
of more business operations post-COVID-19 subsidies and incentives were provided for the
pandemic has generated positive income wage subsidy programme and special grant
growth to the economy. The compensation of for micro, small and medium enterprises in
employees (CE)2 increased by 2.2% to RM537.9 assisting businesses to remain afloat during
billion in 2021 as compared with RM526.6 the COVID-19 pandemic. In 2022, income from
taxes on production and imports is expected to
billion in the previous year. Nevertheless, the
increase by 8.2% following higher income from
share of CE to GDP decreased to 34.8% due
indirect tax and non-tax revenue on production
to faster growth of nominal GDP by 9% as
and imports. Nevertheless, the overall net
compared with CE. The similar situation was
taxes on production and imports is expected
also experienced in many countries during
to record a higher contraction of 64.8% due to
the pandemic. However, the share of CE is
upsurge in subsidy expenditure, particularly for
expected to expand slightly to 34.9% in 2022
petroleum subsidy.
in tandem with better economic growth
2
Includes wages and salaries payable in cash, allowances and other expenses to employees received in-kind (including meals, uniform, transportation, etc.) as well
as social contributions related to employment.
3
Consists of operating surplus for capital owners and mixed-income for self-employed and unincorporated enterprises and others.
4
Consists of taxes on products and other taxes on production less subsidies on products and other subsidies on production.
Chapter 2.indd 78 29/09/2022 6:21 PM

TABLE 2.6. Gross Domestic Product by Income Components,

2020 – 2023
(at current prices)
SHARE CHANGE
(%) (%)
2020 2021 20221 20232 2020 2021 20221 20232
Compensation of employees 37.1 34.8 34.9 35.2 -3.0 2.2 11.0 6.9
Gross operating surplus 60.1 62.9 64.4 62.2 -6.9 14.0 13.5 2.4
Operating surplus 39.7 45.3 48.5 45.2 -4.6 24.5 18.4 -1.1
Mixed income 20.4 17.5 15.9 17.0 -10.7 -6.5 0.7 13.2
Taxes less subsidies 2.7 2.3 0.7 2.6 -30.4 -8.0 -64.8 276.4
GDP at purchasers' prices 100.0 100.0 100.0 100.0 -6.3 9.0 10.8 6.0
1
Estimate
2
Forecast
TABLE 2.7. Gross Domestic Product by Income in Selected Countries,

2019 – 2021
COMPENSATION OF EMPLOYEES GROSS OPERATING SURPLUS TAXES LESS SUBSIDIES
2019 2020 2021 2019 2020 2021 2019 2020 2021
SHARE OF GDP (%)

Malaysia 35.9 37.1 34.8 60.5 60.1 62.9 3.7 2.7 2.3
Philippines 34.4 34.8 36.7 57.9 58.6 55.7 7.7 6.6 7.6
Singapore 39.9 42.8 39.4 53.1 56.5 55.7 6.9 0.7 4.9
Republic of Korea 47.5 48.2 47.9 43.0 41.9 41.9 9.6 9.9 10.2
Australia 47.2 48.2 47.7 42.8 44.7 46.5 10.0 7.1 5.8
Netherlands 47.8 50.9 49.0 41.1 41.4 41.9 11.0 7.7 9.0
Canada 50.8 52.5 50.7 38.2 40.1 40.3 11.0 7.4 9.0
United Kingdom 48.7 52.6 51.6 39.6 41.1 39.5 11.8 5.9 8.8
Germany 53.4 54.7 53.8 36.8 37.1 38.2 9.8 8.1 7.9
United States 53.4 55.0 54.2 40.0 41.4 41.0 6.6 3.7 4.8
External Sector amid global chip shortage. Products include

semiconductor, telecommunication equipment
Stellar performance persists parts as well as automatic data processing
equipment, represented the highest share of
Trade Performance E&E components.
Gross exports are projected to increase by Meanwhile, exports of non-E&E products,

17.4% in 2022 attributed to strong external particularly petroleum products and palm oil-
demand from major trading partners following based manufactured products are expected to
the acceleration of global technology upcycle grow in 2022 following robust external demand
and digitalisation. Exports of manufactured and high commodity prices. Similarly, exports
goods are estimated to grow by 15% driven of agriculture goods are estimated to grow by
by higher demand for both E&E and non-E&E 26.2%, buoyed by demand for palm oil and
products by 26.9% and 6.1%, respectively. The palm oil-based agriculture products as well as
increase in E&E exports is expected to continue natural rubber. Increasing demand particularly
strongly, supported by steady external demand from China, Egypt, India and Saudi Arabia
is expected to raise exports of palm oil by
Chapter 2.indd 79 29/09/2022 6:30 PM

32.8%. Rise in exports earnings is also partly projected to edge up by 39.8%, supported by
due to the surge in palm oil prices following increase in global demand for crude petroleum
disruption in the supply of sunflower oil from and LNG by 54.4% and 39.3%, respectively.
Ukraine, which has increased the demand for Malaysia being a net commodity exporter, is
other oil substitutes, particularly palm oil. benefitting from the surge in prices of crude
Furthermore, exports of mining goods are oil, natural gas and palm oil.
table 2.8. External Trade,

2021 – 2023
rm million change
(%)
2021 20221 20232 2021 20221 20232
Total trade 2,228,366 2,634,758 2,669,392 24.9 18.2 1.3
Gross Exports 1,241,022 1,456,448 1,488,859 26.1 17.4 2.2
of which:
Manufactured 1,068,431 1,228,384 1,256,892 25.8 15.0 2.3
Agriculture 98,093 123,777 125,901 36.8 26.2 1.7
Mining 69,757 97,496 99,054 19.4 39.8 1.6
Gross Imports 987,344 1,178,309 1,180,533 23.3 19.3 0.2
of which:
Capital goods 103,823 113,028 113,349 14.4 8.9 0.3
Intermediate goods 545,801 658,656 660,292 27.2 20.7 0.2
Consumption goods 83,893 98,168 98,333 13.2 17.0 0.2
Trade Balance 253,678 278,139 308,326 38.4 9.6 10.9
1
Estimate
2
Forecast
Source: Department of Statistics, Malaysia External Trade Development Corporation and Ministry of Finance, Malaysia
table 2.9. Gross Exports,

January – August 2021 and 2022
rm million change share

(%) (%)
2021 2022 2021 2022 2021 2022
Manufactured 673,357 853,293 25.8 26.7 86.5 84.1
Agriculture 58,127 81,972 32.1 41.0 7.5 8.1
Mining 44,035 74,610 6.8 69.4 5.7 7.4
Others 1 3,030 4,530 7.5 49.5 0.4 0.4
Gross exports 778,548 1,014,404 24.9 30.3 100.0 100.0
1
Including gold scrap and waste; worn clothing; and special transaction not classified
Source: Department of Statistics, Malaysia and Malaysia External Trade Development Corporation
Gross imports are projected to expand and income prospects. Imports of

by 19.3% in 2022 supported mainly by intermediate goods which constitute the
intermediate and capital goods on the largest share of 55.9% are expected to
back of continued improvement in domestic increase by 20.7%, followed by growth of
economic activities with reopening of the capital goods and consumption goods at
economy. Likewise, imports of consumption 8.9% and 17%, respectively. Meanwhile,
goods are anticipated to increase with the capital goods form a share of 9.6%, while
surge in households demand following consumption goods constitute 8.3% of the
gradual improvement in employment total imports.
Chapter 2.indd 80 29/09/2022 6:21 PM

table 2.10. Exports of Manufactured Goods,


(%) (%)
2021 2022 2021 2022 2021 2022
E&E 282,738 380,777 18.8 34.7 42.0 44.6
Non-E&E 390,618 472,516 31.5 21.0 58.0 55.4
Petroleum products 59,982 103,571 37.2 72.7 8.9 12.1
Chemicals & chemical products 44,699 53,098 36.4 18.8 6.6 6.2
Manufactures of metal 35,873 44,805 55.9 24.9 5.3 5.3
Machinery, equipment & parts 31,359 40,078 23.6 27.8 4.7 4.7
Optical & scientific equipment 29,652 36,535 11.6 23.2 4.4 4.3
Palm oil-based manufactured products 19,965 28,931 44.1 44.9 3.0 3.4
Rubber products 50,574 21,075 110.6 -58.3 7.5 2.5
Processed food 15,508 18,343 12.7 18.3 2.3 2.1
Iron & steel products 17,335 22,747 10.3 31.2 2.6 2.7
Transport equipment 10,089 11,045 -22.7 9.5 1.5 1.3
Textiles, apparels & footwear 10,122 11,792 16.0 16.5 1.5 1.4
Manufactures of plastics 10,335 11,631 20.6 12.5 1.5 1.4
Wood products 10,326 12,725 4.9 23.2 1.5 1.5
Non-metallic mineral products 6,786 7,850 33.5 15.7 1.0 0.9
Jewellery 3,493 4,679 52.8 34.0 0.5 0.5
Paper & pulp products 5,421 6,329 29.0 16.7 0.8 0.7
Beverages & tobacco 1,574 1,703 -3.3 8.2 0.2 0.2
Other manufactures 27,525 35,580 10.3 29.3 4.1 4.2
Exports of manufactured goods 673,357 853,293 25.8 26.7 100.0 100.0

FIGURE 2.8. Top 10 Trading Partners,

January – August 2022
(% share)
Exports Imports
14.7%
25.7% 21.1%
30.5%
13.3%
RM1,014.4 RM858.8
billion 2.6% billion 10.7%
2.8%
3.4%
10.6% 4.4%
3.5% 8.1%
4.7%
3.6% 6.2%
3.6% 5.9% 7.5%
4.4% 6.1% 6.4%
SINGAPORE INDIA CHINA REPUBLIC OF KOREA

CHINA INDONESIA SINGAPORE THAILAND
US REPUBLIC OF KOREA TAIWAN AUSTRALIA
JAPAN TAIWAN US VIET NAM
HONG KONG REST OF THE WORLD JAPAN REST OF THE WORLD
THAILAND INDONESIA

Chapter 2.indd 81 29/09/2022 6:21 PM

table 2.11. Gross Imports by End Use,


(%) (%)
2021 2022 2021 2022 2021 2022
Capital goods 66,781 77,423 10.8 15.9 10.6 9.0
Capital good (except transport equipment) 63,054 69,003 0.8 9.4 10.0 8.0
Transport equipment (industrial) 3,727 8,420 -262.8 125.9 0.6 1.0
Intermediate goods 348,480 472,308 23.2 35.5 55.5 55.0
Food and beverages, primary and processed, mainly 17,639 23,525 33.7 33.4 2.8 2.7
for industries
Fuel and lubricants, primary, processed and others 31,623 71,941 -2.5 127.5 5.0 8.4
Industrial supplies, primary, processed and n.e.s.1 176,419 213,016 35.9 20.7 28.1 24.8
Parts and accessories of capital goods and transport 122,800 163,826 14.3 33.4 19.5 19.1
equipment
Consumption goods 54,338 67,982 13.5 25.1 8.6 7.9
Food and beverages, primary and processed, mainly 23,857 29,774 11.2 24.8 3.8 3.5
for household
Transport equipment (non-industrial) 1,097 1,220 89.7 11.3 0.2 0.1
Other consumer goods 29,384 36,988 13.8 25.9 4.7 4.3
Durables 7,899 9,208 35.9 16.6 1.3 1.1
Semi-durables 8,379 11,458 4.2 36.7 1.3 1.3
Non-durables 13,106 16,321 9.6 24.5 2.1 1.9
Others 15,668 27,707 21.6 76.8 2.5 3.2
Re-exports 143,189 213,411 21.3 49.0 22.8 24.8
Gross imports 628,456 858,832 20.4 36.7 100.0 100.0
1
Not elsewhere stated
Balance of Payments continue until year end with narrowing current

account surplus of RM50.8 billion or 3.1% of
The current account surplus of the balance GNI.
of payments narrowed to RM7.4 billion or
0.9% of GNI in the first half of 2022. This is In 2022, the goods account is projected to
due to lower surplus in the goods account register a higher surplus of RM195 billion
and higher deficit in the income account underpinned by increasing exports of
albeit smaller deficits in the services account. manufactured, agriculture and mining goods.
In the second half of the year, the current Meanwhile, the services account is expected
account surplus is projected to expand to to record a smaller deficit of RM59.7 billion
RM43.4 billion or 5.3% of GNI following a following surging receipts in the travel account
wider surplus in the goods account despite albeit widening deficit in transport and other
a larger deficit in the services and income services accounts. The opening of international
accounts. The performance is expected to borders and transition towards the endemic
Chapter 2.indd 82 29/09/2022 6:21 PM

phase have contributed to the increase in The primary income account is projected to
tourist arrivals, leading to a smaller deficit register a higher deficit of RM69.5 billion in
of RM10.8 billion in the travel account. In 2022 due to a wider deficit in investment
contrast, the transport account is projected income following higher income payments,
to register a higher deficit of RM34.4 billion partly due to repatriation of profits and
due to lower earnings gained by domestic dividends by foreign investors in Malaysia. The
companies from transactions involving airline investment income payments are expected
passenger fares and freight charges as well to reach RM133.7 billion. Correspondingly,
as airport and port charges on activities such compensation of employees is anticipated
as aircraft landing and parking, ship docking to record a higher deficit of RM7.9 billion
and cargo handling. Similarly, the other attributed to an increase in the number of
services account is expected to register a wider foreign professionals in Malaysia following the
deficit of RM14.5 billion following increasing resumption of high impact projects.
payments for manufacturing services on
physical inputs owned by others, insurance and Earnings in the secondary income account in
pension services as well as personal, cultural 2022 are anticipated to increase to
and recreational services. RM24.7 billion following a one-off receipt
table 2.12. Current Account of the Balance of Payments,

2021 – 2023
(RM million)
2021 20221 20232

receipts payments net receipts payments net receipts payments net
Balance on goods and 1,063,817 953,972 109,845 1,264,686 1,129,431 135,255 1,322,984 1,159,342 163,642
services
Goods 977,076 806,503 170,573 1,146,539 951,538 195,001 1,186,754 970,511 216,243
Services 86,741 147,469 -60,728 118,147 177,893 -59,746 136,230 188,831 -52,601
Transport 15,455 47,907 -32,452 21,359 55,805 -34,446 24,815 58,728 -33,913
Travel 320 14,884 -14,563 13,362 24,138 -10,777 23,848 29,553 -5,705
Other services 70,965 84,679 -13,713 83,426 97,949 -14,523 87,567 100,550 -12,983
Primary income 98,166 139,716 -41,551 78,930 148,433 -69,504 80,714 151,084 -70,370
Compensation of employees 6,487 13,090 -6,603 6,840 14,736 -7,896 6,936 15,995 -9,059
Investment income 91,679 126,627 -34,948 72,089 133,697 -61,608 73,778 135,089 -61,311
Secondary income 20,503 30,098 -9,594 24,675 39,586 -14,911 25,675 45,906 -20,231
Balance on current account 1,182,486 1,123,786 58,700 1,368,290 1,317,449 50,841 1,429,373 1,356,333 73,040
% of GNI 3.9 3.1 4.2
1
Estimate
2
Forecast
and higher remittances by Malaysians owing to larger remittances by foreign

working abroad. Payments in the secondary workers from Bangladesh, India, Indonesia,
income account are expected to increase to Nepal and the Philippines as economic
RM39.6 billion, leading to a higher deficit of activities normalise and the revision of
RM14.9 billion. The increase in payments is minimum wage.
Chapter 2.indd 83 29/09/2022 6:21 PM

FIGURE 2.9. International Reserves In the first half of 2022, the financial
RM billion Months/Times account registered a net inflow of RM30.7
500 10 billion compared with RM13 billion in 2021
attributed to significantly higher net inflows
400 8 in direct investment and other investment
accounts, which more than offset net outflows
300 6 in the portfolio and financial derivatives
accounts. Similarly, FDI registered a higher
200 4 net inflow of RM41.7 billion, channelled
mainly to the manufacturing, financial and
100 2 insurance/takaful activities as well as
wholesale and retail trade sectors. Net
0 0 outflow of direct investment abroad by
J A J O J A J O J A J
2020 2021 2022 Malaysian companies recorded an
INTERNATIONAL RESERVES increase to RM18.3 billion. The outflows were
MONTHS OF IMPORTS OF GOODS AND mainly directed into financial and insurance/
SERVICES RIGHT SCALE
TOTAL SHORT-TERM EXTERNAL DEBT takaful activities, wholesale and retail trade
As at 30 August 2022, Malaysia's international reserves as well as transportation and storage
amounted to RM476.5 billion or USD108.2 billion adequate to
finance 5.4 months of imports of goods and services and 1.1 sectors.
times of the total short-term external debt (end-December
2021: RM486.8 billion; USD116.9 billion; 7.7 months; 1.2 times)
Source: Bank Negara Malaysia (Quarterly Bulletin 4Q 2021)
feature article 2.3
Malaysia’s Trade Performance:

Pre-, During and Post-Pandemic (2017 – June 2022)
Introduction
Malaysia’s trade structure has been evolving significantly over recent decades, from agriculture-
and mining-based into robust manufacturing-led sectors and has since propelled itself to becoming
a leading exporter, particularly in the electrical and electronic (E&E) products. Subsequently,
Malaysia has also emerged as among the major exporters in other key non-E&E products since
2000, benefitting from diversification in exports market and greater focus on higher value-added
downstream manufacturing activities. These include petroleum products, chemicals and chemical
products as well as manufactures of metal. Currently, the manufacturing sector continues to
contribute the highest share of more than 80% of the country’s overall exports.
Trade Performance Pre-Pandemic
The year 2020 witnessed an unprecedented turn of events on global economy, the worst downturn
since the Great Depression in 1930s. This was primarily due to execution of strict lockdown
to contain the spread of highly contagious COVID-19 virus worldwide, which had equally been
impacting the global trade. However, Malaysia’s trade had been trending down even before the
pandemic due to the US – China trade war that escalated starting July 2018, as shown in Figure
2.3.1. After moderating at 6.3% in 2018, Malaysia’s total trade subsequently contracted by 2.1% in
Chapter 2.indd 84 29/09/2022 6:21 PM

2019, while exports and imports declined by 0.8% and 3.5% (2018: 7.3% and 5.2%), respectively.
This highlighted the adverse impact of the trade war to Malaysia’s trade performance, mainly
because both China and the US have always been among Malaysia’s major trading partners. Almost
50% of Malaysia’s exports are incorporated into China’s final products, which China subsequently
exports to the US (MOF, 2019). Being a highly open economy, in which trade is deeply integrated
within the global supply chains, the US imposition of high tariffs and trade barriers on China had
indirectly impacted Malaysia’s exports to China.
Notwithstanding the trade war effects, Malaysia stood to benefit in the short run, arising from
trade diversion when both the US and China substituted their demand for imports from each other
to other emerging markets including Malaysia. In addition, Malaysia gained from the relocation
of multinational corporations (MNCs) seeking to circumvent the high tariffs. This resulted in an
increase in manufacturing investments as well as generating trade and investment spillovers into
the country.
FIGURE 2.3.1. Malaysia’s Trade Performance, 2017 – June 2022

RM Billion
800 Malaysia’s short-run • First MCO implementation
Russia-Ukraine
conflict began
benefit from the trade war in mid-March 2020 due to in February 2022
Total trade
Malaysia’s trade with COVID-19
700 the US and China grew
posted an all-time
• Malaysia experienced trade high of more than
The US-China by 2.4% in 2019 amid the deficit in April after 269 RM2 trillion in 2021
trade war began trade war to record 26.2% months of trade surplus
600 in July 2018 shares combined since Nov 1997
500
E&E exports rose
by 18% in 2021 attributed
400 to digitalisation
Rubber products soared by 71.4%
following surged in global demand
300 for PPE and rubber gloves
200
Post-
Pre-Pandemic During Pandemic Pandemic
100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2017 2018 2019 2020 2021 2022
TOTAL TRADE
GROSS EXPORTS
GROSS IMPORTS
Source: Ministry of Finance, Malaysia
Regardless of the US-China trade conflict, Malaysia acknowledges the importance of strengthening
relations with existing major trading partners as well as building alliance with other emerging
markets, in the region and across the globe. In lieu of this, Malaysia continues to support a more
liberalised, free and fair global trading environment by engaging in various international trade
policies through bilateral, regional, multilateral and plurilateral trade agreements, as shown in
Table 2.3.1. The involvement in free trade agreements (FTAs) is aimed not only to reduce and
eliminate tariffs, but also to address issues relating to non-tariff barriers that would otherwise
impede the flow of goods and services.
Ultimately, Malaysia’s main trade policies aimed at improving market access for exports of
commodities and manufactured goods as well as services, apart from developing and promoting
exports of higher value-added manufactures. Additionally, expanding trade with major trading
partners and diversifying trade with non-traditional markets, particularly developing countries, are
always the cornerstone of the nation’s trade strategies, within ASEAN and around the globe.
Chapter 2.indd 85 29/09/2022 6:21 PM

table 2.3.1. Malaysia’s Free Trade Agreements
bilateral ftas date of entry regional ftas (with asean) date of entry
into force into force
Malaysia-Japan Economic Partnership 13 July 2006 ASEAN Free Trade Area (AFTA) 1993
Agreement (MJEPA)
Malaysia-Pakistan Closer Economic 1 January 2008 ASEAN-China Free Trade Agreement 1 July 2003
Partnership Agreement (MPCEPA) (ACFTA)
Malaysia-New Zealand Free Trade 1 August 2010 ASEAN-Korea Free Trade Agreement 1 July 2006
Agreement (MNZFTA) (AKFTA)
Malaysia-India Comprehensive 1 July 2011 ASEAN-Japan Comprehensive Economic 1 February 2009

Economic Cooperation Agreement Partnership (AJCEP)
(MICECA)
Malaysia-Chile Free Trade Agreement 25 February 2012 ASEAN-Australia-New Zealand Free 1 January 2010
(MCFTA) Trade Agreement (AANZFTA)
Malaysia-Australia Free Trade 1 January 2013 ASEAN-India Free Trade Agreement 1 January 2010
Agreement (MAFTA) (AIFTA)
Malaysia-Turkey Free Trade Agreement 1 August 2015 ASEAN-Hong Kong Free Trade 13 October 2019
(MTFTA) Agreement (AHKFTA)
Regional Comprehensive Economic 18 March 2022

Partnership (RCEP)
multilateral fta date of entry plurilateral fta date of entry

into force into force
World Trade Organisation (WTO) WTO (member Comprehensive and Progressive Malaysia is yet
since 1 January Agreement for Trans-Pacific to ratify to the
1995), GATT Partnership (CPTPP) CPTPP
(member since
24 October 1957)
Source: Ministry of International Trade and Industry, Malaysia
Trade Performance During Pandemic
The COVID-19 pandemic has implicated trade and the overall economy on an unprecedented scale,
which required various urgent measures and policy responses to mitigate the crisis. Malaysia’s
total trade contracted by 3.3% in 2020, with exports and imports declining by 1.1% and 5.8%,
respectively. The country had been recording monthly trade surplus consecutively since November
1997, before registering a trade deficit of RM4.5 billion in April 2020. Total trade in April and May
2020 recorded double-digit deficits of 16.4% and 27.6%, respectively, as a consequence of a series
of strict movement control orders (MCOs) since mid-March 2020. The onset of the pandemic had
halted the operation of non-essential sector businesses, while the essential sectors, including
healthcare, telecommunications and media, food and beverages, utilities as well as banking were
only allowed to operate at 60% capacity. To revive the adversely affected manufacturing sector,
Malaysia progressively reopened its economy. As a result, Malaysia’s external demand gradually
recovered, particularly among major trading partners, with exports rebounded in the second half of
2020.
The silver lining from the pandemic was advantageous to certain Malaysia’s exports, notably the
E&E and rubber products, which benefitted from surging demands. The E&E products continued to
contribute the highest share of Malaysia’s total exports in 2020 at 39.3% or RM386.3 billion, greater
Chapter 2.indd 86 29/09/2022 6:21 PM

than the levels recorded during pre-pandemic years. The increase in E&E exports, particularly
semiconductors, automatic data processing equipment as well as telecommunication equipment
parts, were largely due to the upward global trend for digitalisation and technology upcycle. This
upward trend is subsequent to the measures of new norms, such as work-from-home, online-school
and learning as well as a wider adoption to e-hailing services.
The increase in global demand for personal protective equipment (PPE) was a boon to Malaysia’s
rubber products, especially rubber gloves, due to COVID-19 healthcare-related procedures and
massive vaccination programmes worldwide. Malaysia’s rubber gloves recorded an upsurge in
exports starting April 2020, soaring from a double-digit to triple-digit growth beginning June 2020
until mid-2021, before contracting in September 2021 as the pandemic abated.
Meanwhile, Malaysia’s exports recorded a mixed performance for the three main commodities,
namely palm oil and palm oil-based agriculture products, liquefied natural gas (LNG) and crude
petroleum. The country’s exports of palm oil and palm oil-based agriculture products accelerated
by 18.4% to RM52.3 billion in 2020, benefitting from higher prices of crude palm oil especially in
the second half of the year, despite lower palm oil production mainly due to labour shortage and
movement restrictions. In contrast, exports of LNG and crude petroleum recorded a double-digit
contraction of 29.7% and 28.5% to RM29.9 billion and RM18.8 billion, respectively, in 2020. The
global lockdowns caused the price of crude oil to plunge to as low as USD17.32 per barrel on
21 April 2020, reflecting a significant drop in demand for fuel due to sudden decline in
transportation, travel and tourism activities.
Total imports slipped by 5.8% to RM800.5 billion in 2020, out of which intermediate goods recorded
the highest share of 53.6%, followed by capital and consumption goods at 11.3% and 9.3%,
respectively. As economic activities slowed down, imports of intermediate goods shrank by 8.1% as
a result of lower imports of processed industrial supplies, particularly iron and steel. Capital goods
also declined by 9.4%, mainly due to reduced imports of industrial transport equipment, primarily
vehicles other than railway. Similarly, consumption goods contracted marginally by 0.03%, because
of lower imports of semi-durables, especially apparels and footwear. Nonetheless, the imports
of food and beverages, both for industrial and household consumptions, continued to record an
increasing trend since the start of the pandemic.
Green Shoots Emerging en route to Post-Pandemic
Malaysia’s trade performance is poised to benefit from global economic rebound post-pandemic,
despite the prevailing supply chain disruptions and global uncertainties. Swift, substantial and
multi-pronged pandemic policy responses with various stimulus packages have been supporting
the economy. In addition, the manufacturing sector which remained operative during the series of
MCOs imposed in 2021, continues to underpin exports growth.
Nonetheless, the pre-requisite to recover from the pandemic is to have an efficient and sound
vaccination programme to contain the outbreak, before the economy can operate at full capacity.
This is vital to ensure a sustainable balance between lives and livelihood. Against this backdrop,
the Malaysian Government launched a full force nationwide implementation of the National
COVID-19 Immunisation Programme (PICK) starting February 2021, which until June 2022, registered
over 83% of country’s population to have received at least two doses of vaccination. The success
of PICK resulted in easing of stringent measures and movement control with economic activities
operating close to normalcy when country moved to Phase 4 of the National Recovery Plan that
Chapter 2.indd 87 29/09/2022 6:21 PM

took effect from 3 January 2022. Hence, Malaysia’s trade performance accelerated in the fourth
quarter of 2021, with total trade surged by 29.5%, while exports and imports rose by 29.4% and
29.6%, respectively.
Malaysia’s total trade in 2021 posted the highest growth since 1994 at 24.9%, surpassing
RM2 trillion for the first time, with exports and imports recording an all-time high, as shown in
Figure 2.3.2. Trade balance registered a surplus for 24 consecutive years since 1998, driven by
robust external demand and higher commodity prices. Exports to major trading partners namely
ASEAN, China, the US and the EU recorded strong double-digit growth. Additionally, significant
export expansions were registered to emerging export markets such as Costa Rica, Egypt, Ghana,
Iraq, Kenya and Nigeria.
FIGURE 2.3.2. Malaysia’s Trade Performance, 2017 – H1 2022
RM Trillion RM Trillion
1.5 2.5
1.2
2.0
0.9
0.6
1.5
0.3
0.0 1.0
2017 2018 2019 2020 2021 H1 2022
GROSS EXPORTS
GROSS IMPORTS
TRADE BALANCE
TOTAL TRADE (RIGHT SCALE)
In terms of sectoral performance, exports of manufactured, agriculture and mining

goods accelerated to double-digit growth, as depicted in Figure 2.3.3. Manufactured goods,
making up 86.1% of total exports, performed strongly by reaching RM1 trillion mark for the
first time, boosted by strong exports of E&E products, petroleum products, chemicals and
chemical products as well as rubber products. Commodities also registered a resilient growth
with double-digit expansion, particularly for palm oil and palm oil-based agriculture
products, natural rubber and LNG, attributed to robust external demand.
Likewise, imports recorded a turnaround at 23.3% to RM987.3 billion with overall

double-digit increase in intermediate, capital and consumption goods which accounted for
74.3% of total imports in 2021, emanating from robust economic activities. Intermediate
goods increased by 27.2% to RM545.8 billion following strong imports of processed industrial
supplies, while capital goods grew by 14.4% amounted to RM103.8 billion resulting from
higher imports of parts for machinery and mechanical appliances. Meanwhile, consumption
goods edged up by 13.2% to RM83.9 billion attributed to growing imports of processed food
and beverages.
Chapter 2.indd 88 29/09/2022 6:21 PM

FIGURE 2.3.3. Performance of Gross Exports and Imports, 2017 – H1 2022
RM Trillion
1.5
2017
2018
1.2
2019
2020
2021
0.9 H1 2022
0.6
0.3
0.0
s g re s te l n s ts
os s re
d in tu os s ia s ta io s er or
Gr ort tu in ul Gr ort ed ood pi ds pt d th p
p c M ic p Ca oo m oo O ex
Ex fa gr m
r G u G e-
u A Im te
G ns R
an In Co
M
The growth trajectory was projected to resume in 2022 with semblance of post-pandemic normalcy,
until the Russia-Ukraine conflict erupted in February which weakened the outlook for this year.
This was then followed by China’s strict zero-COVID policy in March which started in Shanghai and
extended to Beijing as well as other cities. Shanghai reopened in June after a longer-than-expected
lockdown to curb the virus, with gradual reopening of Beijing and other cities. In spite of global
uncertainties, Malaysia’s trade performance continued the upward trend in the first half of 2022 on
account of strong external demand. This was also driven by Malaysia transitioning into the endemic
phase and the reopening of international borders that have eased the flows of supply chain and
human mobility which include business travellers and foreign workers.
While exports of E&E and non-E&E accelerated, in contrast, exports of rubber products, specifically
rubber gloves, declined significantly as demand for PPE subsided when economic activities continue
to normalise. Rubber gloves registered a significant slowdown in exports starting July 2021 before
contracting from September onwards. On the other hand, exports of Malaysia’s main commodities,
namely palm oil and palm oil-based agriculture products, LNG and crude petroleum registered
double-digit growth in the first half of 2022 mainly due to steady external demand. Imports of
intermediate, capital and consumption goods recorded similar double-digit growth in the same
period as the country’s economy remained buoyant.
Clearly, Malaysia’s diversified economy and accommodative policies through the Government
support interventions have cushioned the impacts from the external shocks of the reeling global
growth due to 3Cs – COVID-19, Climate and Conflict (UNICEF, 2020). Apart from COVID-19, the
impacts of climate change has been more damaging beyond economic factors, while the prolonged
Russia-Ukraine crisis with stringent economic sanctions on Russia has led to fragile recovery and
intense uncertainty (UNCTAD, 2022).
More areas have been identified to be the country’s new sources of growth which include advanced
E&E, aerospace, biomass, pharmaceuticals, digital economy as well as chemicals and chemical
product industry (MITI, 2021). All these new sources of growth are expected to value-add the
upstream and downstream activities to further diversify Malaysia’s exports and productive imports
that will boost overall trade performance.
Chapter 2.indd 89 29/09/2022 6:21 PM

The E&E industry, which has long been a significant contributor to Malaysia’s trade, will be value-
added to be more advanced with sound ecosystem to produce local talents and create high-end
jobs. In addition, Malaysia has envisaged to become the aerospace hub in Southeast Asia by
2030. The Aerospace Industry Blueprint 2030 identified five key subsectors to be developed as
an integral part of the global value chains, namely maintenance, repair and overhaul (MRO); aero
manufacturing; system integration; engineering and design services; as well as education and
training.
Furthermore, in driving research, development, commercialisation and innovation (R&D&C&I),

Malaysia will increase the utilisation of high value-added biomass products which will elevate local
technology as well as lower greenhouse gas emissions. Subsequently, R&D&C&I will also be applied
to the pharmaceutical industry in developing and producing a variety of drugs and medicines, thus
lowering the dependency on foreign pharmaceutical products.
Meanwhile, the fast-paced adoption of digitalisation, technologies and cyber security practices
have strengthened the digital economy, which is expected to contribute over 23% to Malaysia’s
GDP by 2025 (MOSTI, 2022). The digital economy enables small and medium enterprises (SMEs) to
integrate into global markets through e-commerce and information technology, thus reducing costs
associated with transport and border operations. Additionally, the chemicals and chemical product
industry has a high potential to expand by producing new and emerging products, including
speciality chemicals, green chemicals and specialised plastics.
Conclusion
Malaysia, as an open economy, is susceptible to any global crisis that may impact growth and
trade. The COVID-19 crisis and Russia-Ukraine conflict have severely disrupted global supply chains
and impeded overall economic activities. In a nutshell, Malaysia has managed to weather the
storm stemming from its strong and diverse economic foundation and accommodative policies. The
Government’s prompt measures and policy responses have reinforced the momentum of economic
recovery as well as strengthened the economic resilience and reforms. Additionally, Malaysia
continues to develop strong trading alliances, both with traditional major trading partners as well
as other emerging export markets, while expanding to new sectors of growth that promote value-
added activities. Ultimately, this would foster the resilience of Malaysia’s economy to persevere in
the currently fragile and challenging state of globalisation as well as to withstand any future crisis.
Prices For the second half of 2022, the higher retail

price of standard chicken and eggs as well
as the subsidy removal of bottled cooking
Rise of food inflation
oil starting July is expected to provide an
upward pressure for food inflation. In addition,
The Consumer Price Index (CPI) grew at 3.1%
temporary spike in headline inflation is
during January to August 2022, attributed to
expected in the third quarter mainly due to
pressures on certain fresh food prices due
the low base effect following the removal of
to high input costs from rising non-energy
electricity discount for domestic consumer,
commodity prices. Of the total CPI, food
which was provided under the National
and non-alcoholic beverages (food) inflation
People’s Well-Being and Economic
registered 5.1% during the first eight months
Recovery Package (PEMULIH) from July to
of 2022 compared with 1.4% recorded during
September 2021. For the whole year,
the same period last year. Nevertheless, the
inflation is anticipated to register
increase in food inflation has been mitigated
at 3.3%.
by the existing price controls and provision of
subsidies for selected food items.
Chapter 2.indd 90 29/09/2022 6:21 PM

The Producer Price Index (PPI) by local was particularly contributed by a significant
production increased by 10.2% during the first increase in mining (21.1%); agriculture, forestry
seven months of 2022, attributed to higher and fishing (14.1%); as well as manufacturing
global commodity prices, particularly crude oil (9.1%) sectors. The PPI is expected to
and natural gas. By sector, the surge in PPI remain stable throughout the year due to
normalisation of growth in input costs.
TABLE 2.13. Consumer Price Index,
(2010 = 100)
CHANGE CONTRIBUTION TO
(%) CPI GROWTH
WEIGHT 1
(PERCENTAGE POINTS)
2021 2022 2021 2022
CPI 100.0 2.3 3.1 2.30 3.10
Food and non-alcoholic beverages 29.5 1.4 5.1 0.41 1.50
Alcoholic beverages and tobacco 2.4 0.6 0.5 0.01 0.01
Clothing and footwear 3.2 -0.4 0.0 -0.01 0.00
Housing, water, electricity, gas and other fuels 23.8 1.0 1.7 0.24 0.40
Furnishings, household equipment and routine household 4.1 1.3 3.3 0.05 0.14
maintenance
Health 1.9 0.5 0.5 0.01 0.01
Transport 14.6 11.0 4.5 1.61 0.66
Communication 4.8 0.0 0.0 0.00 0.00
Recreation services and culture 4.8 0.5 1.8 0.02 0.09
Education 1.3 0.2 1.0 0.00 0.01
Restaurants and hotels 2.9 0.2 4.0 0.01 0.12
Miscellaneous goods and services 6.7 0.8 1.8 0.05 0.12
1
Based on Household Income and Expenditure Survey 2016
TABLE 2.14. Producer Price Index,

January – July 2021 and 2022
(2010 = 100)
CHANGE CONTRIBUTION TO
(%) PPI GROWTH
WEIGHT1 (PERCENTAGE POINTS)
2021 2022 2021 2022
PPI 100.000 7.7 10.2 7.700 10.200
Agriculture, forestry and fishing 6.730 37.9 14.1 2.551 0.949
Mining 7.927 27.3 21.1 2.164 1.673
Manufacturing 81.571 3.9 9.1 3.181 7.423
Electricity and gas supply 3.442 -0.8 0.3 -0.028 0.010
Water supply 0.330 1.0 1.5 0.003 0.005
Producer Price Index by stage of processing 100.000 7.7 10.2 7.700 10.200
Crude materials for further processing 16.410 29.1 15.8 4.775 2.593
Intermediate materials, supplies and components 56.119 5.2 12.4 2.918 6.959
Finished goods 27.471 -0.1 0.8 -0.027 0.220
1
Based on Economic Census 2016
Chapter 2.indd 91 29/09/2022 6:33 PM

FIGURE 2.10. Consumer Price Index and Producer Price Index Trends
(% change)
% Consumer Price Index % % Producer Price Index %

6 30 14 100
5 12 80
20 10
4 60
3 8
10 40
6
2
4 20
1 0
2 0
0
0
-10 -20
-1
-2
-2 -40
-20 -4
-3 -6 -60
-4 -30 -8 -80
J A J O J A J O J A J J A J O J A J O J A J
2020 2021 2022 2020 2021 2022
CPI PPI
TRANSPORT AGRICULTURE, FORESTRY AND
FOOD AND NON-ALCOHOLIC BEVERAGES FISHING
RIGHT SCALE MINING RIGHT SCALE
HOUSING, WATER, ELECTRICITY,
GAS AND OTHER FUELS MANUFACTURING
feature article 2.4
Food Inflation in Malaysia
Introduction
Inflation in Malaysia has been rising in recent months from 2.2% in March 2022 to 4.7% in August
2022. The main factor of Malaysia’s higher inflation in this period is the food inflation, which
resulted from higher prices of agricultural inputs and supply chain disruption due to the ongoing
Russia-Ukraine conflict. In addition, the food inflation is also caused by the strengthening of other
basket of currencies, particularly US dollar. The increase in food inflation has a greater impact on
the low-income group compared to high-income group. Hence, the Government has undertaken a
number of measures to mitigate the impact of food inflation, including the provision of additional
consumption subsidies and cash assistance. The measures, in turn has resulted in Malaysia’s
inflation maintained at manageable level compared to many advanced and regional countries.
The Main Factor of Higher Inflation in Malaysia
Malaysia’s headline inflation is measured by the annual rate of change in Consumer Price Index
(CPI). As shown in Figure 2.4.1., the CPI is calculated based on a consumption basket of 12 main
groups consisting of 552 items with respective fixed weights.1 Food and non-alcoholic beverages
1
The consumption basket is classified according to the United Nations Classification of Individual Consumption According to Purpose (COICOP). Beginning January
2018, the weights used in the CPI calculation by the Department of Statistics Malaysia are based on the pattern of households’ spending obtained from the 2016
Household Expenditure Survey.
Chapter 2.indd 92 29/09/2022 6:21 PM

(food) group form the largest weightage within the basket that would largely influence the
movement of headline inflation in Malaysia. This is especially true during food-related crisis period
when inflation is considerably influenced by food component. However, the implementation of price
controls can only be done on certain items in the food group to curb the price increase as food
items are too diverse (Ibrahim, 2015; Qayyum et al., 2018; Deconinck et al. 2020). Figure 2.4.2.
shows the monthly headline and food inflation from January 2010 to August 2022.
FIGURE 2.4.1. Consumer Price Index by 12 Main Groups (weightage, total=100.00)

Food & non-alcoholic Alcoholic, beverages Clothing & Housing, water, Furnishings, household Health
beverages & tobacco footwear electricity, gas & equipment & (1.9)
(29.5) (2.4) (3.2) other fuels routine household
(23.8) maintenance
(4.1)
Transport Communication Recreation Education Restaurants & Miscellaneous

(14.6) (4.8) services & culture (1.3) hotels goods &
(4.8) (2.9) services
(6.7)
FIGURE 2.4.2. Headline Inflation vs. Food Inflation (2010 = 100)

%
8
4 3.1
2.1
2
-2
Crude oil prices > Crude oil prices >
USD100 per barrel USD100 per barrel
-4
A J O A J O A J O A J O A J O A J O A J O A J O A J O A J O A J O A J O A J
J'10
J'11
J'12
J'13
J'14
J'15
J'16
J'17
J'18
J'19
J'20
J'21
J'22
HEADLINE LONG TERM AVERAGE FOR HEADLINE BEFORE PANDEMIC (2010-2019)

FOOD LONG TERM AVERAGE FOR FOOD BEFORE PANDEMIC (2010-2019)
Source: Department of Statistics and Ministry of Finance, Malaysia (estimates)
Chapter 2.indd 93 29/09/2022 6:21 PM

Impact of Crises on Food Inflation in Malaysia
Food inflation in Malaysia increased sharply from 3% in 2007 to 8.8% in 2008 following the steady
increase in global commodity prices as well as the 40.4% adjustment to retail fuel prices in June
2008. It was moderated to 4.1% in 2009 due to weak global demand conditions, reflecting the
pass-through of external factors onto the domestic food prices (BNM, 2008 and 2009).
In the second half of 2010, global food prices increased sharply for the second time, attributed
to the stronger demand following post-economic recovery from the 2009 Global Financial Crisis
and adverse weather conditions affecting major wheat and corn producing countries (BNM, 2010
and 2011). These global developments coupled with upward adjustments to administered prices of
RON95, diesel, LPG and sugar in July 2010 have also impacted food prices in Malaysia. The impact
was reflected in food inflation from 2.4% in 2010 to 4.8% in 2011, as shown in Figure 2.4.3.
In 2020, the COVID-19 pandemic had weakened global demand for goods and services and
subsequently caused commodity prices, especially crude oil to fall significantly. This has resulted in
lower retail fuel prices in Malaysia leading to negative headline inflation of 1.2% in 2020 from 0.7%
in 2019. Meanwhile, food inflation recorded a lower rate of 1.3% in 2020 compared with 1.7% in
2019.
In line with the easing of containment measures and movement restrictions globally, economic
activities resumed and boost global demand leading to increase in commodity prices. Domestically,
the low base in 2020 has resulted in a headline inflation rate of 2.5% in 2021 as RON95 and
diesel pump prices were capped higher at RM2.05 and RM2.15 per litre starting from March 2021.
Likewise, food inflation increased by 1.7% in 2021.
FIGURE 2.4.3. The Impact of Crises on Food Inflation in 2008 - 2011 and 2020 - 2022
2008 (Global Commodity 2009 (Global Financial Crisis) 2010 (Recovery) 2011 (Climate Issue)
Crisis) Headline inflation: 0.6% Headline inflation: 1.7% Headline inflation: 3.2%
Headline inflation: 5.4% Food inflation: 4.1% Food inflation: 2.4% Food inflation: 4.8%
(2007:2%)
Food inflation: 8.8% (2007:3%)
2020 (COVID-19 Pandemic Crisis) 2021 (Recovery) January - August 2022

Headline inflation: -1.2% Headline inflation: 2.5% (Russia-Ukraine Conflict)
(2019: 0.7%) Food inflation: 1.7% Headline inflation: 3.1%
Food inflation: 1.3% Food inflation: 5.1%
(2019:1.7%)
Source: Bank Negara, Department of Statistics and Ministry of Finance, Malaysia
Although RON95 and diesel pump prices remain capped, a higher headline inflation is estimated
in 2022 due to global scenarios, particularly the ongoing Russia-Ukraine conflict which worsen the
supply chain disruptions. Subsequently, the prices of certain food items and vegetables increased
Chapter 2.indd 94 29/09/2022 6:21 PM

due to the rising cost of agricultural inputs such as pesticides and fertilisers on a global scale
(DOSM, 2022). According to the Food and Agriculture Organisation (FAO) Food Price Index (2022),
global food prices index recorded an increase of 13.1% in March 2022 to 159.7 points from
141.2 points in February 2022, the highest month-on-month growth since 1990. If the external
cost pressure remains, food prices in Malaysia are expected to be the main factor of inflationary
pressure in 2022 as it is the biggest component of the CPI basket as shown in Figure 2.4.4.
FIGURE 2.4.4. Percentage Contribution of Main Groups to Headline Inflation
(%)
5
4 3.7
3.1
3 2.5
2
1.0 0.7
1
-1
-2
-1.2
-3
2017 2018 2019 2020 2021 2022
(January - August)
FOOD & NON-ALCOHOLIC BEVERAGES HOUSING, WATER, ELECTRICITY, GAS & OTHER FUELS
TRANSPORT OTHERS
HEADLINE INFLATION
Source: Department of Statistics and Ministry of Finance, Malaysia (estimates)
The strengthening of foreign currencies, particularly the US dollar or weakening of ringgit against
foreign currencies also contributed to the increase in domestic prices of imported food items and
agricultural inputs. Therefore, it is important to enhance domestic inputs for food production,
particularly animal feed and fertilisers, thus reducing exposure to exchange rate risk. At the same
time, the Government can manage global-to-domestic pass-through inflationary pressure due to
global food and crude oil price increases by using fiscal policy tools.
Impact of Food Inflation on the Low-income Group
High food inflation affect the disposable income and savings of lower-income group rather than
those in the higher-income groups (Meo et al. 2018). Hill & Webber (2022) suggested that during
the cost-of-living crisis, low-income households need a stable social safety-net that provides
sufficient financial assistance. In Malaysia, the composition of food consumption expenditure
of bottom 40% household income group (B40) was higher (24.2%) as compared to middle 40%
household income group (M40) (18%) and top 20% household income group (T20) (12.6%) as
highlighted in Figure 2.4.5. (DOSM, 2020). This indicates that the B40 is most vulnerable to food
inflation and in line with Hill & Webber (2022).
Chapter 2.indd 95 29/09/2022 6:21 PM

FIGURE 2.4.5. Percentage of Food Consumption Expenditure by Household Income Group
(%)
30
25 24.2
20 18
15
12.6
10
0
B40 M40 T20
Short-term Measures by the Government to Mitigate the Impact of Food Inflation
The Government is always concerned on the impact of the high global food prices, particularly on
low-income group. Hence, the Government has implemented short-term measures which include
price control, additional subsidies and cash assistance. The Government continues to implement
consumption subsidies on RON95, diesel, LPG, cooking oil, flour, electricity, chicken and eggs. The
projected consumption subsidies have increased from RM5.2 billion allocated under the Budget
2022 to reach RM52 billion.
The Government also continues to provide various social assistance including cash assistance
to target groups to ease the higher cost of living. As announced in the Budget 2022, the
Bantuan Keluarga Malaysia (BKM) with an allocation of RM8 billion is expected to benefit
4million households, 1.2 million senior citizens and 3.4 million single individuals. In addition, the
Government also announced additional cash assistance amounting to RM630 million beginning
27 June 2022 to cushion the impact of increase in basic food prices. The total amount of subsidies
and social assistance in 2022 is estimated to be around RM80 billion which would be the largest in
Malaysian history.
Starting from 1 July 2022, the Government has set a new ceiling price for chicken in Peninsular
Malaysia at RM9.40 per kilogram, while the new ceiling price for chicken eggs stood at 45 cents;
43 cents; and 41 cents for grades A; B; and C, respectively as a measure to curb food inflation. The
measures are expected to increase subsidies payment to poultry farmers by RM370 million in 2022.
Other measures introduced to address the chicken supply and prices issues include banning
chicken export temporarily; establishing a chicken stockpile and optimising cold storage facilities;
abolishing Approved Permit (AP) for the import of chicken; easing the process of subsidy claims
by poultry farmers; and certifying more halal slaughterhouses abroad. Additionally, a Cabinet
committee called Pasukan Khas Jihad Tangani Inflasi was established on 29 June 2022. The role of
the committee is to formulate strategies and coordinate actions among relevant ministries and
agencies in solving inflation-related issues, particularly measures to curb price increases in a more
efficient and effective manner.
Chapter 2.indd 96 29/09/2022 6:21 PM

The Government continues to retain the pump prices of RON95 and diesel since March 2021
by providing subsidies, despite rising crude oil prices. Without the subsidies and price control
mechanism, transportation cost would be significantly higher and lead to an increase in prices
of other goods and services. Consequently, inflation in Malaysia was recorded at 4.7% in August
2022, which is lower than selected advanced and regional countries such as the UK (9.9%), the US
(8.3%), Thailand (7.9%), Singapore (7.5%) and the Philippines (6.3%). However, the higher estimated
consumption subsidies in 2022 would limit the Government’s ability to spend on enhancing the
productive capacity of the nation such as developing public infrastructure, especially in the health
and education sectors.
Long-term Measures to Ensure Competitiveness and Affordability of Food Prices
The Government is committed to undertake reforms to strengthen domestic food security in

the long-run. With the recent geopolitical tensions and global food inflation, it is imperative to
ensure food availability, accessibility and affordability by enhancing domestic production of food,
particularly rice, fruits and vegetables, livestock, and fisheries.
Efforts to increase productivity will be undertaken to ensure producers have the ability and
competitiveness to produce their products in the local market while helping to stabilise supply to
meet the higher future demand. In this regard, the Government will support the agrofood business
in enhancing their productivity through the adoption of 4IR technologies such as precision farming,
drones and smart algorithms.
In addition, the Government will continue to improve food-related supply chain in an effort to
promote food price stability. Concurrently, the Government is committed to mitigate the impact
of global developments on the cost of living, particularly the low-income group. Upskilling and
reskilling programmes will be enhanced to ensure a stable standard of living in the long-term,
especially for the group.
Conclusion
The rising food prices, mainly due to supply chain disruptions following Russia-Ukraine conflict
which led to higher inflation, has affected Malaysians, particularly the low-income group. The
Government has undertaken a number of measures to mitigate the impact of food inflation,
including the provision of additional consumption subsidies and cash assistance. The measures
have cushioned the impact of inflation on the rakyat and maintained the inflation rate at
manageable level. However, over-reliance on short-term policies could adversely affect fiscal
sustainability. Moving forward, it is imperative for the Government and private sector to work
together in enhancing national food productivity towards ensuring food security in the long-term.
Chapter 2.indd 97 29/09/2022 6:21 PM

Labour Market vacancies doubled to over 508,000 positions

in June 2022 compared to around 258,000
Encouraging improvement in the labour market in the same period last year. However, job
placements were still not encouraging despite
Labour market recorded an encouraging the workers shortage issue faced by employers
recovery in the first half of 2022 attributed to and incentives to increase hiring such as
effective employment intervention initiatives JaminKerja. Active job seekers, who are mostly
through Budget 2022 as well as assistances with tertiary education, also declined by 57.5%
and stimulus packages. As the economy to around 64,000 persons which may imply the
transitions towards endemicity, the vibrancy of nature of jobs, wages and benefits offered may
business operations had stimulated aggregate not be attractive enough to job seekers.
labour demand thus creating more job
opportunities in the market. Consequently, Labour market is anticipated to improve
the labour force participation rate increased further in the second half of the year amid
to 68.5%. Meanwhile, the labour force grew stronger demand for workers by businesses
at 1.3% to register 15.9 million persons, and industries in meeting domestic and
whereas the total employment grew higher external demand expansion. As a result, the
by 1.9% to record 15.2 million persons. unemployment rate is expected to continue
These improvements resulted in a significant its decreasing trend to record between 3.8%
reduction in unemployed persons with the – 4% for the whole 2022. Total employment is
unemployment rate stood at 4.2% or 667,000 projected to expand by 1.6% to 15.3 million
persons during the first half of the year. The persons, with the services sector being the
services sector continued to be the major major contributor to employment at 65.1%,
source of employment during the period at mainly in the wholesale retail and trade
66%, followed by manufacturing (16.9%) and subsector, as well as accommodation and food
agriculture (9.3%) sectors. and beverages services. The manufacturing
sector is expected to provide 16.6% of total
The positive improvement in the labour employment, particularly in the E&E as well
market was also depicted from the declining as food and beverages industries, while
retrenchment numbers which dropped the agriculture sector accounts for 10.1%,
significantly by 48% to record 18,076 persons especially in the oil palm industry.
as at end-June 2022. The trend has returned
to the pre-pandemic level as industries The reopening of the country’s borders
retained workers to accommodate the beginning 1 April 2022 and finalisation of
increased business activities. Meanwhile, job memorandum of understanding with the
table 2.15. Labour Market Indicators
(‘000) change
(%)
H11 20222 20233 H11 20222 20233
Labour force 15,890.8 15,933.1 16,140.2 1.3 0.9 1.3
Employment 15,223.8 15,303.7 15,563.9 1.9 1.6 1.7
Unemployed 667.0 629.3 576.3 (4.2) (3.8 – 4.0) (3.5 – 3.7)
1
January to June 2022
2
Estimate
3
Forecast
Note: Figures in parentheses refer to unemployment rate
Chapter 2.indd 98 29/09/2022 6:21 PM

table 2.16. Employed Persons by Sector
(‘000) share
(%)
H12 20223 20234 H12 20223 20234
Agriculture, forestry and fishing 1,422.8 1,548.5 1,560.8 9.3 10.1 10.0
Mining and quarrying 53.8 81.6 82.0 0.4 0.5 0.5
Manufacturing 2,578.2 2,538.9 2,578.3 16.9 16.6 16.6
Construction 1,128.5 1,168.2 1,176.9 7.4 7.6 7.6
Services 10,040.5 9,966.5 10,165.8 66.0 65.1 65.3
Total 1
15,223.8 15,303.7 15,563.9 100.0 100.0 100.0
1
Total includes ‘Activities of extraterritorial organisations and bodies’
2
January to June 2022
3
Estimate
4
Forecast
respective resource countries had eased hiring to further expand by 3.5% to RM93,800 in
and mobility of migrant workers to the country. 2022, following unwavering efforts to boost
Hence, the number of registered low-skilled technological adoption and innovation in
foreign workers increased by 12.5% reaching industries through digitalisation agenda. The
1.2 million persons as at end-August 2022 as services sector is projected to record the
compared to 1.1 million persons in the same highest increase of 4.2%, followed by mining
period last year. Currently, the foreign workers and quarrying (2.8%) and manufacturing (2.4%)
were sourced mainly from Bangladesh with a sectors.
share of 33.6%, followed by Indonesia (28.5%)
and Nepal (14.8%), and largely employed in the
manufacturing (35.3%), construction (23.2%)
and services (14.1%) sectors. Nevertheless, the Outlook for 2023
hiring of low-skilled foreign workers remained
low at 7.3% from total employment and is Global Outlook
still within the allowable threshold of below
15% from total employment. Meanwhile, the Modest growth prospect
number of expatriates increased by 5.5%
to 86,023 persons as at end-June 2022 as The global economy is projected to grow
compared to 81,539 in June last year. The by 2.9% in 2023 albeit moderately, due to
majority of expatriates was from India (21.2%), slower-than-expected growth in both advanced
China (16.5%) and Japan (8.4%), and mainly economies and EMDEs. Advanced economies’
hired in the services (52.8%), information growth is expected to moderate further to
technology (38.4%) and construction (3.3%) 1.4%. The US GDP growth is projected to
sectors. register 1%, due to weak private consumption
with inflation expected to remain above the
Labour productivity, measured by value-added Federal Reserve’s target of 2%. Likewise,
per worker, improved by 4.1% to RM92,893 growth in the euro area is expected to
in the first half of 2022, attributed to higher moderate to 1.2%, as limited energy supply
productivity in the services, particularly in will continue to be adversely affecting the
tourism-related industries, and manufacturing economic activities.
sectors. Overall, labour productivity is expected
Chapter 2.indd 99 29/09/2022 6:21 PM

The EMDEs’ growth is forecast to be marginally The wholesale and retail trade subsector is
higher by 3.9% in 2023 buoyed by elevated expected to remain the key contributor to the
private consumption and exports. China’s services sector with a growth rate of 3.4%,
economy is projected to grow by 4.6% following the expansion in retail segment,
attributed to strong domestic demand amid particularly due to wider usage of e-commerce
fiscal stimulus. Meanwhile, the economy of and rapid transition to digitalisation. The effort
India is expected to grow by 6.1%, albeit a by the Government in creating a cashless
decline in private consumption and external society ecosystem throughout the country,
demand. The ASEAN-5’s growth is forecast especially in rural areas through Retail Sector
to increase by 5.1%, sustained by further Digitalisation Initiative Programme will provide
improvements in domestic consumption and additional impetus to the growth of the
private investment. segment. The motor vehicles segment is also
projected to support the subsector with the
Global trade is anticipated to record 3.2% introduction of new models with attractive
in 2023 amid weaker demand. Trade is sales packages. In addition, the anticipated
expected to record a growth of 3.2% in improvement in disposable income following
advanced economies and 3.3% in EMDEs. In better prospect in the labour market will spur
advanced economies, both exports and imports growth of the subsector.
are expected to grow by 4.7% and 4.5%,
respectively, owing to prolonged supply chain The real estate and business services subsector
disruptions. Likewise, both exports and imports is forecast to expand by 6.6% with business
of the EMDEs are anticipated to grow to 3.6% services segment leading the growth of
and 4.8%, respectively. the subsector. The segment is anticipated
to increase, driven by higher demand for
In 2023, global inflation is forecast at professional services particularly engineering,
5.7% backed by the anticipated fall in prices legal and accounting in line with expansionary
of commodities which include crude oil. The of the economic activities especially in the
inflation rate in advanced economies services, manufacturing and construction
is projected to record 3.3%, while sectors. Meanwhile, the real estate segment is
EMDEs at 7.3%. projected to rise, backed by stronger housing
market and rental activities following higher
house ownerships and tenancies, which include
Domestic Outlook among others, the Government’s initiatives
under the Malaysia Premium Visa Programme
Sectoral and i-MILIKI.
Services Sector The information and communication subsector

is expected to expand by 4.6%, mainly driven
Spearheading growth for resilient economy by the increasing digital adoption across
all economic sectors. Phase 2 of the Jalinan
The services sector is anticipated to expand Digital Negara ( JENDELA) is expected to boost
by 5% in 2023, benefitting from the sustained the digital connectivity through the utilisation
domestic demand in spite of a moderate global of Fixed Wireless Access and other fit-for-
economic growth. The growth will continue purpose technologies, thus enabling the
to be mainly driven by wholesale and retail country to further address the digital divide.
trade; real estate and business services; In this regard, Digital National Berhad aims
information and communication; transportation to extend the fifth-generation cellular network
and storage; and food & beverages and (5G) coverage to 80% of the nation’s populated
accommodation subsectors. areas by 2024. In addition, high quality
Chapter 2.indd 100 29/09/2022 6:21 PM

investment in digital-related infrastructures with expected higher usage in industrial,

such as data centres and cloud computing commercial and residential segments. In
services as well as continued surge in the addition, the ongoing implementation of rural
e-commerce and online entertainment activities electrification projects through extension of
will further boost the subsector. grid connection as well as alternative
systems such as small hydro, solar hybrid and
The transportation and storage subsector solar photovoltaic will further support the
is anticipated to grow by 7%, supported by subsector.
all segments due to the expansion in rail,
highway, port and airport activities as well as The other services subsector is projected
sustained external demand. The land transport to rise by 8.5%, driven by private health
segment is projected to increase attributed and education segments. The continuous
to full operations of Mass Rapid Transit (MRT) commitment and active participation of
Putrajaya Line and Sungai Besi-Ulu Kelang Malaysia Healthcare Travel Council (MHTC) in
Elevated Expressway. Likewise, the air transport international conferences and exhibitions to
segment is forecast to rise in line with the promote Malaysian healthcare services, are
increase in passenger traffic, following further expected to boost the private health segment.
improvement in tourism-related activities and In this regard, MHTC estimates healthcare
more international flight services. Meanwhile, tourism revenue to increase by 30% to RM1.3
the water transport segment is expected to billion in 2023. Meanwhile, the number of
expand moderately as trade growth soften. foreign students studying in Malaysia is
expected to remain favourable attributed to
The food & beverages and accommodation the competitive education fees charged by
subsector is expected to grow by 7.8%, private education institutions. Subsequently,
attributed to the significant increase in both the government services subsector is forecast
segments following the implementation of to increase by 6.1% in 2023.
the Tourism Recovery Framework 2.0 in June
2022. The framework focuses on strengthening Manufacturing Sector
recovery and restoring global competitiveness
of tourism industry to be more resilient and Sustaining growth momentum
sustainable.
The manufacturing sector is forecast to grow
The finance and insurance subsector is by 3.9% in 2023 supported by expansion in
projected to turn around by 3.1%, following all subsectors. Output in export-oriented
further improvement in economic and industries is anticipated to increase despite a
investment activities. The implementation of softening global trade, with the E&E segment
the strategic thrusts in the Financial Sector continues to drive the industries. In addition,
Blueprint, 2022 – 2026, which include elevating output of rubber-based products segment
the financial well-being of households and is projected to rise mainly attributed to the
businesses as well as advancing digitalisation increase in production of tyres and tubes
of the financial sector is expected to spur the following buoyant global demand for motor
growth of the finance segment. In addition, vehicles.
the insurance segment is projected to rebound,
on account of higher premiums and return on Similarly, production in domestic-oriented
investment amid lower claims. industries is expected to increase driven by the
manufacture of food and food-related as well
The utilities subsector is projected to grow by as construction-related segments. The growth
2.4%, driven by strong demand in electricity; in the food and food-related manufacturing
and water and sewerage segments, in tandem segments are in line with stronger demand
Chapter 2.indd 101 29/09/2022 6:21 PM

for food and beverages following anticipation In addition, the other agriculture and livestock
of an improvement in consumer sentiment subsectors are anticipated to grow further,
and robust tourism activities. Meanwhile, the backed by higher demand, particularly from
expansion in residential and non-residential households and food-related businesses.
construction activities as well as continuation Various efforts to increase domestic production
of several infrastructure projects will boost are anticipated to support the segment,
the production in iron and steel and other among others, developing idle lands through
construction-related segments. In addition, fertigation technique and intensifying adoption
output of transport-related goods is expected of smart farming using top-notch technologies.
to increase further attributed to strong
demand from both the households and Mining Sector
businesses following improvement in labour
market and investment activities. The mining sector to expand further
Agriculture Sector In 2023, the mining sector is expected to

expand by 1.1% on account of higher natural
Better labour market fortifies sectoral growth gas output as the completion of new pipeline
projects in Sarawak, namely the Kasawari,
For 2023, the agriculture sector is forecast Jerun and Timi, is anticipated to boost
to increase by 2.3% attributed to an production especially during the second half
improvement in labour supply within the of the year. In addition, higher demand from
sector. The oil palm subsector is expected major trading partners particularly Japan as
to expand on account of higher CPO output well as new demand from domestic industrial
following increase in fresh fruit bunches and petrochemical segment are anticipated
production and better oil extraction rate. to further increase the production of natural
The establishment of Mechanisation and gas. Nevertheless, output of crude oil and
Automation Research Consortium of Oil Palm condensates is projected to moderate due to
(MARCOP), a government–industry platform to decline in production rate from the existing
promote further adoption of mechanisation fields in Peninsular Malaysia. Softening global
and automation, is also expected to enhance economic growth is expected to dampen
efficiency, especially the harvesting process, demand for energy, leading to a downward
thus increasing the productivity of the trend of world crude oil prices. Therefore,
subsector. The CPO price is forecast to average Brent crude oil price is expected to record a
at RM4,300 per tonne in 2023 compared with lower average of USD90 per barrel in 2023, in
RM5,000 per tonne in 2022, higher than the line with the Organization of the Petroleum
last 10–year average of RM2,685 per tonne Exporting Countries’ (OPEC) anticipation of a
as supply of global edible oils and fats is slowdown in the oil demand worldwide.
anticipated to remain tight.
Construction Sector
The rubber subsector is projected to turn
around in anticipation of an increase in rubber Continuing expansion towards stability
tapping activity in line with the sustained
high price following stronger global demand The construction sector is forecast to
from automotive industry, especially in China. expand by 4.7% in 2023 following a better
Furthermore, the Government's initiative performance in all subsectors. Civil engineering
to promote the usage of RRIM Hydrobest subsector is anticipated to rebound buoyed by
technology among smallholders, is expected to implementation of new projects such as Mass
increase the productivity of rubber subsector. Rapid Transit Line 3 (MRT3) Circle Line and
The SMR20 rubber price is anticipated to acceleration of ongoing infrastructure projects
average at RM6.50 per kilogramme (kg) which include, Rapid Transit System (RTS)
in 2023 compared with RM7.00 per kg Link, East Coast Rail Link (ECRL) and Light Rail
in 2022. Transit Line 3 (LRT3).
Chapter 2.indd 102 29/09/2022 6:21 PM

In addition, the approved investment projects Malaysia into a high-income nation. The
in the manufacturing sector are anticipated industries include advanced E&E, aerospace
to come onstream and subsequently creating and pharmaceuticals.
a greater demand for industrial buildings.
Hence, the non-residential buildings subsector Public sector capital outlays continue to
is projected to expand further. Meanwhile, the complement the private sector in developing
residential buildings subsector is expected to the country. Among major projects expected to
grow steadily supported by more construction commence in 2023 are MRT3, Sarawak-Sabah
of affordable houses, in line with the strategy Link Road Phase 2 and Trans Borneo Highway.
under the 12MP. In addition, incentive offered The continuation of large-scale transport-
by the Government to encourage home related projects such as ECRL, LRT3 and
ownership through the i-MILIKI programme RTS Link will also provide impetus to public
is expected to spur demand for residential investment. All these initiatives are expected
buildings while addressing the property to support public investment to increase by
overhang issue. 2.1% in 2023. Public consumption is also
projected to expand by 2% on account of
Domestic Demand higher spending on emoluments mainly due to
special additional annual salary increment for
Private sector remains the key driver civil servants.
The economy is expected to remain In line with the expansion in domestic

resilient with domestic demand continues economic activities, the national income in
to drive growth amid softening global current prices is expected to increase by 6.2%.
environment. Private sector expenditure is Meanwhile, the GNS is anticipated to expand
forecast to grow at 5.8% in 2023 with the by 0.4%, with total investment envisaged to
share to GDP at 76.2%, while public sector contract by 5.4% to RM358.6 billion. The share
expenditure is projected to expand by 2% with of GNS is projected to remain significant at
the share to GDP at 17%. Hence, domestic 24.7% of GNI. The savings-investment gap is
demand is envisaged to further expand expected to remain in surplus at RM73 billion
by 5.1%. or 4.2% of GNI. This provides ample liquidity
in the financial system, which can be mobilised
Private consumption, which has been robust to finance long-term productive investments
despite global uncertainties, is anticipated without sourcing external funds.
to grow by 6.3%. The growth forecast will be
supported by continuous improvement in the Income
labour market as well as robust economic and
social activities particularly the tourism-related The need for higher income for a more decent
activities. The special financial assistance in living
January 2023 to civil servants and pensioners
will support household disposable income and A more robust economic recovery anticipated
stimulate private spending. in 2023 will generate higher income prospects
for workers. Continuous efforts to expedite
Private investment is projected to register digitalisation and high value-added production
a growth of 3.7% attributed to an increase activities to improve productivity, reduce
in capital spending in technology-intensive dependency on low-skilled workers as well as
manufacturing and services sectors, increase women participation in the labour
particularly ICT-related machinery and market are expected to result in significant
equipment. As the nation moves towards improvement of CE. Hence, the share of CE
adoption of digital technologies in line with of GDP is projected to rise to 35.2% in 2023.
the National Fourth Industrial Revolution However, the share is still relatively lower
(4IR) Policy, investment in catalytic industries as against comparable peers and advanced
will continue to be enhanced to transform economies. Thus, in ensuring a more equitable
Chapter 2.indd 103 29/09/2022 6:21 PM

sharing of the growth benefit between and 53%, respectively. Continuous demand
employees and capital owners, there is a for semiconductor arising from technological
need for a paradigm shift from the low-wage advancement, particularly electronic integrated
labour market structure towards a more decent circuit, processors and controllers is anticipated
wage standard. Otherwise, insufficient wage to drive E&E products to grow by 2%. Similarly,
increase from the current level may deter the exports of non-E&E are expected to improve
attainment of the long-term CE target of 40% by 2.6% contributed by high demand for
of GDP in 2025 under the 12MP. petroleum products, chemicals and chemical
products as well as manufactures of metal.
The share of GOS of GDP is forecast to decline
to 62.2% in 2023 with a sizeable percentage Exports of agriculture goods are forecast to
of GOS continued to be received by capital expand by 1.7% in 2023, supported by higher
owners. Meanwhile, mixed-income for the demand for palm oil and palm oil-based
self-employed or independent entrepreneurs agriculture products and natural rubber.
is expected to grow significantly by 13.2% Similarly, export earnings from mining goods
as strong economic performance and are anticipated to increase by 1.6% contributed
normalisation of flexible way of working will by higher demand from major markets for
create more jobs and earning prospects for crude petroleum (1.6%) and LNG (1.2%),
this group. Efforts to enhance social protection underpinned by favourable global energy
to all self-employed may also contribute to a prices.
larger growth of mixed-income. As a result, the
share of mixed-income to GDP is projected to Gross imports are expected to increase
rise to 17%. marginally by 0.2% on account of high demand
for capital, intermediate and consumption
In line with strong economic growth goods indicating sustained domestic demand
expectation supported by continued efforts and improvement in investment activities.
to prevent revenue leakages and strategies Imports of intermediate goods are anticipated
to implement a wider tax base, income from to grow by 0.2% attributed to the expansion
indirect tax and non-tax revenue on production in manufacturing and construction sectors.
and imports is projected to expand by 7.5%. Likewise, imports of capital goods are
Meanwhile, with the expiration of the COVID-19 projected to increase by 0.3% following
Fund assistance, subsidy expenditure is the resumption of infrastructure projects.
expected to decrease significantly by 50.2%. Subsequently, imports of consumption goods
Thus, income from taxes less subsidies on are estimated to grow by 0.2% driven by food
production and imports is expected to record and beverages, mainly for household product
a larger increase in 2023. category as private spending continues to
rise in tandem with an increase in consumers’
External Sector confidence.
Moderate performance amid global uncertainties The current account balance is expected
to record a surplus of RM73 billion or 4.2%
In 2023, gross exports are expected to of GNI in 2023, in line with continuous
moderate by 2.2% across all sectors, supported improvement in economic activities. The
by modest external demand due to lacklustre goods account is estimated to reach a wider
growth following global uncertainties arising surplus of RM216.2 billion, following higher
from prolonged geopolitical tensions, supply receipts from major trading partners across
chain disruptions and volatility in global all economic sectors despite moderate global
commodity prices. Exports of manufactured growth. On the other hand, the services
goods are anticipated to grow by 2.3% buoyed account is anticipated to register a narrower
by steady demand for both E&E and non- deficit of RM52.6 billion attributed to an
E&E products, which form the share of 47% increase in earnings in the transport, travel
Chapter 2.indd 104 29/09/2022 6:21 PM

and other services accounts. Receipts from ensuring a more equitable distribution of
transport are anticipated to increase to RM24.8 resources. In 2023, the PPI is expected to
billion supported by improvement in earnings moderate on account of stable global input
from air travel and cargo handling services costs.
provided by domestic companies. Similarly,
payments for transport are estimated to widen Labour Market
to RM58.7 billion in 2023 following continuous
reliance on foreign transport services amid the Sustained recovery momentum
expansion in trade activities.
Labour market is projected to sustain the
The travel account is expected to record recovery momentum in tandem with better
a smaller deficit of RM5.7 billion in 2023 growth prospects anticipated in both the
attributed to improvement in tourism domestic and external front. Strategies to
activity. Receipts from travel account address structural issues in the labour
are projected to widen to RM23.8 billion market will also lead to higher labour demand.
contributed by an increase in tourist arrivals Hence, the unemployment rate is forecast to
and per capita spending. Nonetheless, the record in the range of 3.5% – 3.7% in 2023.
receipts are anticipated to be small to offset The total employment is projected to expand
payments amounting to RM29.6 billion, mainly by 1.7% to 15.6 million persons, with more
due to a higher residents’ spending abroad than 80% of employment opportunities will be
as well as business, education and pilgrimage provided in the services and manufacturing
travelling activities. Meanwhile, a smaller sectors.
deficit of RM13 billion is expected in the
other services account backed by an increase The number of low-skilled foreign workers
in receipts albeit higher payments due to and expatriates is projected to increase to the
expansion in the services, manufacturing pre-pandemic level in 2023. This is attributed
and construction sectors as high impact to strategies in expediting business recovery
projects resume and economic activities in the labour-intensive industries as well as
remain steady. to resolve shortages of manpower in less
appealing jobs among locals, particularly in
The primary income account is projected manufacturing, construction and plantation
to record a larger deficit of RM70.4 billion sectors. Nevertheless, the Government will
on account of higher payments by foreign continue strengthening policies to encourage
investors in line with the ongoing investment high-value added production through greater
activities. Furthermore, the expected increase technology adoption and automation to reduce
in compensation for foreign professionals dependency on migrant workers, particularly
following fast-paced adoption of digitalisation the low-skilled foreign workers. Furthermore,
and automation will contribute to the widening increasing wages from the current level
deficit. Net outflows in the secondary income would encourage Malaysians to involve in less
account are expected to widen to RM20.2 attractive jobs.
billion following a one-off payment and
remittances by foreign workers. Labour productivity is expected to increase
by 2.4% to RM96,000 in 2023, spearheaded
Prices by robust tourism-related activities and
revival of construction projects. Continuous
Projected to remain manageable upskilling and reskilling programmes and
expansion of e-Shared Prosperity Organisation
The inflation rate is forecast to range certification to employers practising higher
between 2.8% – 3.3% in 2023, following stable wages based on the Productivity-Linked Wage
commodity prices as well as gradual move System will further support labour productivity
towards targeted subsidies mechanism in improvement.
Chapter 2.indd 105 29/09/2022 6:21 PM

Conclusion with strong domestic demand, stellar exports

performance and implementation of measures
under the expansionary Budget 2022. Despite
The global economy is projected to moderate
a softening world economic growth and trade
in 2022 and 2023 due to inflationary pressure,
activities, the economy is projected to grow
tightening of financial conditions, supply
between 4% and 5% in 2023, supported by
strains and geopolitical fragmentation. These
steady domestic demand, a vibrant services
challenges are anticipated to continue owing
sector, implementation of new and ongoing
to moderating growth in advanced economies
high multiplier infrastructure projects and
and some EMDEs as well as negative spillover
sustained exports. The Government will
from the ongoing conflict in the Eastern
continue to monitor global developments as
Europe.
well as implement appropriate policies and
reform initiatives to strengthen the economy
Meanwhile, Malaysia’s economy is expected to
and fiscal position to withstand potential
continue its recovery momentum to achieve
external shocks, improve people’s livelihoods
a GDP growth of 6.5% to 7% in 2022, in line
and enhance business resilience.
Chapter 2.indd 106 29/09/2022 6:21 PM

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chap ter 2

Feature Article 2.3 – Malaysia’s Trade

Feature Article 2.4 – Food Inflation in Malaysia

99 outlook for 2023

Chapter 2.indd 55 29/09/2022 6:21 PM

Overview employment prospects, sustained consumer

economic outlook 2023 57

Chapter 2.indd 57 29/09/2022 6:21 PM

introduced to improve the business climate.

58 economic outlooK 2023

Chapter 2.indd 58 29/09/2022 6:21 PM

feature article 2.1

Spillover Effects of Russia-Ukraine Conflict on Malaysia

External Shocks Hamper Economic Growth Efforts

Energy Metals and Food 150

economic outlooK 2023 59

Chapter 2.indd 59 29/09/2022 6:21 PM

Effects of Russia-Ukraine Conflict on Malaysia

Poultry Price Hike

Source: Department of Statistics, Malaysia Source: Department of Statistics, Malaysia

Fuel Prices Hike

60 economic outlooK 2023

Chapter 2.indd 60 29/09/2022 6:21 PM

Reduced Purchasing Power

MAIN GROUP WEIGHT CHANGE (%)

Source: Department of Statistics, Malaysia

Caring and Responsible Government

economic outlook 2023 61

Chapter 2.indd 61 29/09/2022 6:21 PM

table 2.2. Services Sector Performance,

62 economic outlook 2023

Chapter 2.indd 62 29/09/2022 6:21 PM

economic outlook 2023 63

Chapter 2.indd 63 29/09/2022 6:21 PM

FIGURE 2.2. Selected Indicators for the Services Sector

Container Handling and Ship Calls Information and Communication Index

Air Passengers and Cargo Electricity Consumption

64 economic outlooK 2023

Chapter 2.indd 64 29/09/2022 6:21 PM

The utilities subsector recorded an increase of Manufacturing Sector

The other services subsector rebounded %

expected to increase by 1.3% in the second

economic outlooK 2023 65

Chapter 2.indd 65 29/09/2022 6:21 PM

table 2.3. Manufacturing Indices by Export- and Domestic-Oriented Industries,

indeX change share

Domestic-oriented industries 112.8 127.4 8.4 12.9 30.0 31.1

Manufacturing 123.6 134.4 12.0 8.8 100.0 100.0

Note: Total may not add up due to rounding

66 economic outlook 2023

Chapter 2.indd 66 29/09/2022 6:21 PM

economic outlook 2023 67

Chapter 2.indd 67 29/09/2022 6:21 PM

FIGURE 2.6. Supply Indicators of Non-Residential Property

Incoming Supply Occupancy Rate

SHOPS OFFICE SPACES OFFICE SPACES

Source: National Property Information Centre

68 economic outlooK 2023

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