After years of economic disruptions and wild growth swings, the Malaysian economy is now in a sweet spot. Strong GDP expansion rates in the past two quarters show us as much: 4.2% year-over-year in the first quarter and then 5.9% yoy in next. Lest somebody points to base effect playing a role (indeed the large variability is still a problem), adjusted quarter-over-quarter numbers are robust as well: 1.5% qoq during first and then 2.9% qoq in the second quarter. These qoq figures are respectable because the post-Covid-19 2021-2024 median qoq rate so far is 1.4%-1.5%.
The government is quick to claim credit. To some extent, it is deserving. The Malaysian government of all colors (2018-2020 PH, 2020-2021 PN-BN, 2021-2022 BN-PN and the current PH-BN-GPS) has been trying to capitalize on fraying global supply chain. Malaysia understood of the need to move quickly as early as 2019 (or possibly earlier). But political crisis (coupled with a health and economic crises) led to policy paralysis and that crisis only ended in 2022 with PH returning to power with unlikely partners. The stability plays an important role in sharpening the minds beyond domestic partisan survival, which allows us to pursue new tech investment opportunities and boost Malaysia’s role in the global manufacturing and technological services (it is not without concerns, especially with the influx of data centers which create little jobs and consume tremendous amount of water and electricity which could push out other manufacturing industries that are not necessarily low-tech).
But in some other ways, it is also about the stars aligning involving sectoral syncing and growth normalization. To understand this, we need to go back to 2020 when many parts of the world hunkered and locked down in response to the pandemic. Yes, the pandemic remains relevant four years after it spread.
The year 2020 was the ground zero, which everything in free fall. By 2021, the pandemic was still a concern but things were improving. Yet many could not move around freely. Services—a labor-intensive sector—had a weak growth and an incomplete recovery. In contrast, the goods sector experienced a surge and production surpassed pre-pandemic levels: XBox, IPhone and a whole lot of electronics were bought and sold to keep everybody sane at home. Afterwards when the economy opened up in 2022 with all the tangible stuff that could be bought were bought (notwithstanding orders unfulfilled due to the then supply chain disruption which kept the goods sector going), goods demand growth took a break in return for heightened services: tourism, restaurants and other related sectors boomed. That is more or less the story for Malaysia, as can be seen from the goods-services growth chart below:
The Malaysian cycle for goods and services almost synchronized at the top in 2022, which in return led to the synchronized whiplash a year later. From 8.9% growth in 2022 thanks to complete reopening of the economy, 2023 GDP rose by only 3.6%. The 2023 goods market was so bad and that was reflected in Malaysian industrial production and export figures. Only the almost complete tourism recovery helped the overall 2023 economy from doing worse.
What makes 2024 a sweet spot is that it is likely a proper normalization amid further synchronization. Normalization because the gyration of growth since 2020 is finally stabilizing for both sectors. Additionally, that normalization and stabilization are bringing balanced growth since both goods and services are expanding faster at the same time (so far).
Normalization, synchronization and balanced expansion. The government under Anwar Ibrahim has done well in adapting to changing global environment and lucky at the same time. Not only has growth been firm. Global prices have been kind to Malaysia as well, leaving inflation benign. Job creations are going well. In short, economic conditions are good. I would argue this leaves the government with a lot of leeway to commit to reforms.
The question now is if the great conditions brought by the cycles would persist. There is some hope (and bad news too) for that but we cannot run on hope that much this time around. With cyclical normalization from here on and definitely in 2025, the government would have to depend less on luck and more on its own initiatives.
