Malaysia Economic Monitor December 2016: The Quest for Productivity Growth

Malaysia’s economic growth has slowed down but remains resilient to external challenges.

The gross domestic product (GDP) growth rate is projected to reach 4.2% in 2016 and 4.3% in 2017.

Private consumption is expected to continue driving economic growth, supported by low unemployment and government income-support measures.

Private investment growth is expected to moderate, as commodity prices and global economic activity remain subdued.

Fiscal consolidation remains on track despite lower oil-related revenues.

An uncertain external environment Uncertainties around the rebalancing of the Chinese economy, further declines in the world commodities’ prices, and evolving US economic policies on global trade are some of the key sources of risks to Malaysia’s economic outlook.

Productivity is the main driver of Malaysia’s economic development, though productivity growth has slowed over the past decade.

Capital and labor have mainly driven Malaysia’s robust economic growth over the past 25 years. While significant, Malaysia’s productivity growth over the past 25 years has been below several global and regional countries.

As capital and labor are expected to slow down, rising productivity growth, greater female labor-force participation, and continued investment in physical and human capital will be necessary for Malaysia to achieve high-income status.

Malaysia has performed relatively well on key aspects of productivity, such as in the quality of infrastructure, and non-technical innovations.

Malaysia’s existing institutional architecture has sustained consistent productivity growth for more than two decades. Challenges in the skills gap, quality of infrastructure, and research and development system need to be addressed in order to refocus attention on productivity growth.

Overcoming skill gaps, building innovation capacity, and addressing distortion in markets where firms sell their goods and services, could help accelerate productivity growth further.

Source: World Bank

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