Malaysia growth fastest in Asia-Pacific after China

Malaysia’s economy is the fastest-growing in its region, credit ratings agency Moody’s has said.

Malaysia has been seen as one of Asia’s highest-potential markets for some time, and its efforts to boost its economic prospects have largely borne fruit. Yesterday, credit ratings agency Moody’s Investors Service said that despite fiscal consolidation acting as a drag on growth, the nation is still performing strongly. In fact, it’s doing better than any other economy in the region, with real gross domestic product (GDP) having grown by 6.3 per cent year-on-year in the first half of 2014.

With a rate of growth that outstrips all the major countries in Asia-Pacific except China, Malaysia is clearly taking positive steps to boost its economy.

Economic Transformation Programme

Malaysia has been working hard to achieve ambitious targets. Under its Economic Transformation Plan, it aims to become a high-income nation by 2020. As a report published in May indicates, it’s on track to achieve it too, with the gross national income per capita in Malaysia at $10,060 (£5,974) in 2013 – close to the $12,616 which marks a high-income nation according to World Bank.

Private investment is flowing in, although some is being offset by Kuala Lumpur’s decision to remove many subsidies in a bid to increase competition and minimise fiscal risk. It’s still got work to do to reach its stated aim of having 92 per cent of total investment come from the private sector, but leaders insist that their goals will not be missed.

In any case, Moody’s seems fairly confident that the plan is working well – since fiscal reform began last year, Malaysia’s A3 sovereign rating has been upped from stable to positive.

Growth

Obviously Malaysia’s economy is in the ascendancy, largely thanks to strong exports as the price of commodities remains high. It has strong internal institutions and domestic consumption is growing as incomes rise, boosting demand for goods and services. As developed economies gather momentum, many of the major markets for Malaysian products are likely to offer new growth opportunities.

Second finance minister Datuk Seri Ahmed Husni Hanadzlah said earlier this week that although Malaysia is increasingly being seen as an example for other economies to follow, the nation can’t continue on its upward trajectory alone. As it looks for ways to strengthen economic growth and improve its economy’s resilience and sustainability, Malaysia is also getting involved in more macroeconomic monitoring, and regular regional and intra-regional consultation.

Risk

Like every economy, Malaysia does face challenges, even though Moody’s has rated its susceptibility to event risk as “low”. Possibly the most serious is a rise on household debt. Moody’s says that this stood at 86.8 per cent of GDP by the end of last year, which is considerably more than in other emerging economies such as India, Indonesia and Thailand.

The government has also increased its exposure to risk as the amount of debt that it guarantees has increased. But it is planning to introduce a controversial new goods and sales tax as part of a plan to increase revenues, shrink its deficit and balance the books.

But as other resource-rich economies have also found, fluctuations in commodities markets could also take a toll. While the price of petroleum and other hydrocarbons is currently quite high, giving exports and government coffers a welcome boost, falling prices could also have a negative impact.