Moderate slowdown amid global headwinds


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  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD314.5bn (World ranking 37, World Bank 2017)
Population 31.62mn (World ranking 45, World Bank 2017)
Form of state Constitutional Monarchy
Head of government Mahathir bin Mohamad (PM)
Next elections 2023, legislative
  • Member of the Association of Southeast Asian Nations (ASEAN)
  • Low inflation
  • Generally strong business environment
  • Resilient banking sector
  • Vulnerable to external pressures
  • Export dependency leads to cyclical risk
  • High level of private external debt
  • High household debt and high external debt burden

Growth is easing as a result of external pressures

Malaysia’s economy continues to perform well despite external headwinds stemming from slower growth in international trade. Economic growth is set to moderate to +4.6% in 2019 from +4.7% in 2018, and the +5.7% posted in 2017 (the highest rate of the past five years). Export growth will likely shrink to +2.5% (-0.5pp compared to 2018), owing to lower global demand, as well as global trade uncertainties. Yet, the trade balance will remain in surplus and continue to be the main contributor to Malaysia’s overall current account surplus.

However, Malaysia’s position in the global value chain makes the economy vulnerable to an escalation of trade tensions between China and the US. After a rebound in December 2018, industrial production growth is now on a downward trend as a result of slowing external demand. Hence, domestic demand will remain the key driver of growth, with private consumption expected to expand by +0.8% y/y in 2019, thanks to lower inflation and a gradual increase in wages. 

Meanwhile, business conditions have continued to improve, supporting long-term growth perspectives. Malaysia has advanced by nine notches to rank 15 in the latest World Bank Doing Business survey, mainly thanks to a reduction in the time it takes to start a business and more favorable taxation regulation.  

Macro-policies: The challenge of fiscal consolidation

In a context of low inflation – consumer price inflation dropped from 3.7% in 2017 to 1% in 2018 – and less pressure on the currency, monetary policy is expected to focus on domestic stability and the central bank is unlikely to pursue further policy tightening after an interest rate hike in 2018. The government’s  fiscal  stance  will  continue  to  be  expansionary,  with plans of a 10% increase of public expenditure in 2019. Meanwhile, total revenue is expected to decline due to (i) lower tax collection following the switch from the goods and services tax to the sales and services tax, which resulted in a total revenue shortfall of around MYR6bn in 2018, and (ii) lower special dividends from PETRONAS as oil prices are forecast to be lower on average in 2019 as compared to 2018. As a consequence, fiscal spending is likely to exceed revenues in 2019 and the fiscal deficit, which was estimated at -3% of GDP in 2018, should remain in worrisome territory. 

Weak external position

Total external debt is still very high at an estimated 66.2% of GDP at the end of Q3 2018, with foreign currency-denominated external debt standing at 46% of GDP. This makes the country vulnerable to external financing risks. However, the risks are mitigated to some extent by Malaysia’s high level of foreign reserves. These cover almost seven months of imports, which is a solid cushion against potential exchange rate pressures.  

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Singapore 15%
20% China
China 13%
10% Singapore
United States 10%
8% Japan
Japan 8%
8% United States
Thailand 6%
6% Thailand

Trade structure by product

(% of total)

Exports Rank Imports
Electrical machinery, apparatus and appliances, n.e.s. 25%
23% Electrical machinery, apparatus and appliances, n.e.s.
Petroleum, petroleum products and related materials 10%
9% Petroleum, petroleum products and related materials
Office machines and automatic data processing machines 7%
4% Other industrial machinery and parts
Fixed vegetable oils and fats, crude, refined or fractionated 5%
3% Telecommunication and sound recording apparatus
Telecommunication and sound recording apparatus 5%
3% Office machines and automatic data processing machines

Even though the payment behaviour of domestic companies is good, the law provides no framework when it comes to late payment.  As a result, interest rates and collection costs should be considered as part of the contract but often have little impact.

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings

Despite recent efforts, the courts' independence and transparency still have margin for improvement. While lawsuits can be slow and should be avoided whenever possible, recent reforms have seen lawsuits resolved more quicky.

In the absence of an efficient and functional debt restructuration scheme, debtor insolvency would only be dealt with through liquidation proceedings, which generally results in low recovery chances for unsecured creditors.

Download the entire collection complexity PDF:

Collection complexity Malaysia

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Contact Euler Hermes

Economic Research Team

Contact Mahamoud Islam

Senior Economist for Asia 

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