Market Overview

An Expert's View about Business Environment in Malaysia

Last updated: 31 May 2011

Latest Development

•Malaysia’s economy registered a growth of 7.2% in 2010. The IMF expects the Malaysian economy to grow 5.5% in 2011.
•Malaysia’s services sector, accounting for about 60% of GDP, grew 6.5% in 2010. The wholesale and retail sub-sector posted a significant growth of 9%, mainly driven by robust retail and motor vehicle sales.
•Malaysia’ exports grew 27% in 2010, reversing the negative growth of 21% in 2009 due to the global economic downturn. Improvements in the external sector were mainly due to the recovery of external demand and regional trade, especially in the electronics sector.
•Hong Kong's total exports to Malaysia surged 21% year-on-year (YoY) to US$852 million in the first three months of 2011, while imports from Malaysia grew 16% to YoY to US$2.8 billion in the same period.

Current Economic Situation

Malaysia’s economy registered a growth of 7.2% in 2010. Both the services and manufacturing sectors contributed to the robust growth the year, accounting for 3.7% and 2.9% GDP growth respectively.

The services sector, accounting for about 60% of GDP, grew 6.5% in 2010. In the sectoral breakdown, the wholesale and retail sub-sector posted a significant growth of 9%, mainly driven by robust retail and motor vehicle sales. The finance and insurance sub-sector expanded 6.3% in 2010, on the back of the increasing bank lending and insurance activities. Furthermore, the improvement in real estate market also boosted the real estate and business services sub-sector, which recorded a 5.6% increase in 2010.

The manufacturing sector also performed well in 2010, expanding 14.1%. Electronics production is the largest manufacturing sub-sector in Malaysia, accounting for almost one-fifth of the total manufacturing production. While demand for electronics products is highly sensitive to the global economic cycle, this sub-sector posted a robust growth of 27.4% in 2010, reversing the 32.4% decline in 2009. The upturn was mainly driven by the recovery of demand and restocking activities, according to Malaysia’s Ministry of Finance.

In 2010, Malaysia’s exports grew 27% to US$199 billion while imports surged 33% to US$165 billion. Malaysia’s main exports are electronic and electrical products, petroleum and liquefied natural gas, wood and wood products, palm oil, rubber, textiles and chemicals. Top export destinations include the US, Singapore, Japan, the Chinese mainland, Hong Kong and Thailand. Main imports include electronics, machinery, petroleum products, plastics, vehicles, iron and steel products and chemicals. Main import partners include Japan, the US, Singapore and the Chinese mainland.

With the incipient economic recovery, Malaysia saw mild inflation with the consumer price level gaining 1.7% YoY in 2010. Although the government is determined to consolidate its fiscal position, government spending will still continue to account for around 14% of GDP as per the Tenth Malaysia Plan.

The Tenth Malaysia Plan, which is a medium-term spending plan covering 2011-15, targets 12 national key economic areas for promotion, including palm oil cultivation and tourism, which are believed to have the greatest potential to boost overall economic growth. The IMF expects the Malaysian economy to grow 5.5% in 2011.

Trade Policy

Malaysia is a member of the World Trade Organisation (WTO), and it adopts a liberal trade regime. Companies are allowed to trade freely without special restrictions.

Malaysia has abolished import tariffs on a wide range of items, including raw materials, components and machinery. Import tariffs, where applicable, are mostly imposed on an ad valorem basis. The import duty on raw materials and intermediate goods ranges between 5%-30%. The trade regime has been progressively liberalised to encourage integration at the regional and global level.

Further, as Malaysia is a member of ASEAN, the country is committed to the ASEAN Common Effective Preferential Tariffs (CEPT) scheme, under which all industrial products traded within ASEAN are subject to import duties of 0%-5% only.

Malaysia has continued to participate in various free trade arrangements (FTAs). Bilateral FTAs include those forged with Japan, Pakistan and New Zealand. Lower import duties are applied to imports originated from the trading partners under different arrangements. Also, bilateral negotiations are on-going with Australia, Turkey, India, the EU and the US.

At the regional level, Malaysia together with ASEAN has concluded agreements with China (i.e. CAFTA, which was signed in November 2002), Korea (signed in November 2004), Pakistan (signed in November 2007), Japan (signed in April 2008), Australia-New Zealand (signed in February 2009) and India (signed in August 2009). Effective 1 January 2010, under the ASEAN-China and ASEAN-Korea Free Trade Agreements, duties on 90% of the concerned were eliminated.

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Posted: 30 May 2011, last updated 31 May 2011

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