Malaysia is a remarkable country by many metrics, highlighted by the Growth Commission as one of the world’s fastest growing economies. It has transformed itself from a low-income, agriculture-oriented economy, to a modern, trade-oriented one that is on the cusp of reaching high-income status within the next few years. To most economists, especially those looking from the outside, Malaysia appears to be doing very well. Growth is strong, at 5.9% last year and projected at 5.4% this year. Inflation is low, at just 1.8% in May 2018, and incomes are high, approaching the magic US$12,055 threshold that marks an exit from the middle-income status that so many see as a trap.
Yet, during this success, Malaysia has just gone through its first change of government in over sixty years. An intensely fought campaign saw cost of living issues featured prominently, as well as a debate on whether economic growth is really being translated into gains that improve the lives of Malaysians. Talking to ordinary Malaysians, it quickly becomes apparent that there is a large disconnect between what the numbers show and how people feel.
In the new edition of the Malaysia Economic Monitor, we try to help explain this disconnect and look beyond the averages. What we find is that, while average growth might be robust, there is a growing disparity between Malaysians working in services versus manufacturing. Wages in the manufacturing sector, which is mostly export-oriented, are growing at four times as in services.
Similarly, while average inflation might be low, food and housing costs have been rising at a much faster pace for several years, even more so in urban areas, where they are now a third higher than in 2010. Low-income households spend much more of their income on food and housing, and in fact, the poorest 10% of Malaysians spend two thirds of their income on these two items, which have seen the greatest cost build-up.
Coupled with stagnant wage growth for those outside manufacturing, it then becomes clearer why many Malaysians feel that growth isn’t benefitting them. Ensuring that people have greater opportunities to improve their lives and access to social safety nets to help protect them from shocks are essential to inclusive growth.
Malaysia’s historic elections show that change is possible and today, the country has a unique window of opportunity to deepen reforms and to ensure that proceeds of economic growth can be broadened to benefit everyone. While change has brought some uncertainty, Malaysia now has a chance to undertake bold reforms.
We see priorities that include measures to raise the productivity level, strengthen the provision of social assistance for low-income households, and facilitate the achievement of inclusive growth, through policies that level the playing field in access to services and economic opportunities (including measures to increase women’s labor force participation).
Indeed, as the country moves closer towards achieving high-income country status, it is important to be aware of the broader aspects of development that are not captured by GDP growth such as in health, education and environmental sustainability.
Navigating this change won’t be easy, but the country now has an opportunity to become known as a nation that is remarkable for not just achieving high rates of economic growth, but for sustainable and inclusive growth that truly benefits all Malaysians.