Malaysia flag Malaysia: Economic and Political Overview

The economic context of Malaysia

Economic Indicators

After growing 8.7% in 2022, the Malaysian economy has weathered external challenges and expanded an estimated 4% in 2023. The primary driver for growth was robust private consumption, buoyed by a strong labour market. However, exports to key trading allies have significantly weakened, influenced by diminished external demand and the economic deceleration in China. The International Monetary Fund (IMF) anticipates a modest uptick in growth to 4.3% in 2024, with a stable outlook for 2025. This projection is underpinned by the resilience of private consumption and investment, along with a rebound in public spending.

In 2023, the fiscal deficit contracted, although it remained elevated compared to pre-pandemic years (4.9%, IMF). The reduction in COVID-related spending and a decrease in subsidies, primarily attributed to lower oil prices, played a significant role in lowering public expenditure in the 2023 budget, despite a substantial rise in development expenditure aimed at tackling persistent long-term economic challenges. The 2024 budget is poised to adhere to fiscal consolidation principles, emphasizing the anticipated shift towards targeted fuel subsidies to constrain public expenditure. While persistent public deficits (around 4.5%) may contribute to an increase in public debt, the situation remains manageable, given that a significant portion of the debt is held in local currency by residents. Overall, the debt-to-GDP ratio increased to 66.9% in 2024 (from 65.6% one year earlier) and is expected to remain stable over the forecast horizon. Both headline - estimated at 2.9% in 2023 - and core inflation showed signs of moderation, with the latter decreasing more gradually. Projections suggest a further moderation to 2.7% in 2024; however, uncertainties persist, notably due to subsidy reform considerations.

Malaysia is on track to achieve high-income status by 2026. The country has one of the highest standards of living in Southeast Asia and a low unemployment rate estimated at 3.6% in 2023 (IMF), but the youth unemployment rate is more than triple (11.7%, World Bank) and rural youth is not counted statistically. Despite substantial reductions in poverty and a narrowing of income gaps among ethnic groups over the past five decades, notable regional disparities persist in both income and human capital outcomes in Malaysia. The country's low tax revenues, standing at 12% of GDP, fall significantly below the upper-middle-income country average of 18%. This limited fiscal capacity constrains opportunities for pro-poor initiatives and investments that could spur inclusive growth. Overall, the IMF estimated the country’s GDP per capita (PPP) at USD 37,083 in 2023.

Main Indicators 20222023 (E)2024 (E)2025 (E)2026 (E)
GDP (billions USD) 407.03415.57445.52477.83509.07
GDP (Constant Prices, Annual % Change)
GDP per Capita (USD) 12,46612,57013,31514,11514,870
General Government Balance (in % of GDP) -5.1-4.5-3.6-3.6-3.5
General Government Gross Debt (in % of GDP) 65.667.366.466.366.8
Inflation Rate (%)
Unemployment Rate (% of the Labour Force)
Current Account (billions USD) 12.525.0010.5713.0314.21
Current Account (in % of GDP)

Source: IMF – World Economic Outlook Database, October 2021

Main Sectors of Industry

Since gaining its independence in 1957, Malaysia has successfully diversified its economy from agriculture and commodity-based to solid manufacturing and service sectors. It had a labour force of 16.1 million people out of a 32.97 million population in 2023. Agriculture employs around 10% of Malaysians and contributes to 8.9% of GDP (World Bank, latest data available). Malaysia is the second main producer of palm oil and tropical wood, and the fifth largest exporter of rubber. The country has successfully developed its economy based on raw materials and has significant reserves of oil, gas, copper and bauxite. Malaysia's crude palm oil production was estimated at around 17.9 million mt-18.5 million mt in 2023, weighed down by lower yields from ageing palm oil trees (S&P).
Industry contributes to around 39.1% of GDP and employs nearly 28% of the active population (World Bank). Malaysia is one of the world's largest exporters of semiconductor devices, electrical goods and appliances, and the government has ambitious plans to make the country a key producer and developer of high-tech products, including software. The country is a major outsourcing destination for components manufacturing, after China and India. It has attracted significant foreign investment, which played a major role in the transformation of its economy. During the initial eleven months of 2023, the Industrial Production Index (IPI) experienced a more moderate growth of 1% compared to the corresponding period in the preceding year (Jan-Nov 2022: 7.1%). This upturn was driven by positive contributions from the electricity (2.3%), manufacturing (0.9%), and mining indexes (0.6%).

The service sector employs the majority of the active population (over 62%) and accounts for 50.9% of GDP (World Bank) which is due mainly to healthcare services, transport, distributive trade and tourism. Tourism was the third biggest contributor to Malaysia’s GDP, after manufacturing and commodities, with over 7% of GDP and 26.1 million foreign tourists in 2019, according to Tourism Malaysia. Nevertheless, the sector is still recovering from the COVID-19 pandemic: an increase in tourist arrivals in Malaysia in 2023 has led the government to adjust its year-end tourism target for the same year to 19.1 million, up from the initial goal of 16.1 million, and is targeting for tourist arrivals to surpass the pre-pandemic level in 2024.

Breakdown of Economic Activity By Sector Agriculture Industry Services
Employment By Sector (in % of Total Employment) 9.6 28.3 62.1
Value Added (in % of GDP) 8.9 39.2 50.8
Value Added (Annual % Change) 0.1 6.6 11.3

Source: World Bank, Latest Available Data. Because of rounding, the sum of the percentages may be smaller/greater than 100%.


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Indicator of Economic Freedom


The Economic freedom index measure ten components of economic freedom, grouped into four broad categories or pillars of economic freedom: Rule of Law (property rights, freedom from corruption); Limited Government (fiscal freedom, government spending); Regulatory Efficiency (business freedom, labour freedom, monetary freedom); and Open Markets (trade freedom, investment freedom, financial freedom). Each of the freedoms within these four broad categories is individually scored on a scale of 0 to 100. A country’s overall economic freedom score is a simple average of its scores on the 10 individual freedoms.}}

World Rank:
Regional Rank:

Economic freedom in the world (interactive map)
Source: Index of Economic Freedom, Heritage Foundation


Business environment ranking


The business rankings model measures the quality or attractiveness of the business environment in the 82 countries covered by The Economist Intelligence Unit’s Country Forecast reports. It examines ten separate criteria or categories, covering the political environment, the macroeconomic environment, market opportunities, policy towards free enterprise and competition, policy towards foreign investment, foreign trade and exchange controls, taxes, financing, the labour market and infrastructure.

World Rank:

Source: The Economist Intelligence Unit - Business Environment Rankings 2020-2024


Country Risk

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Latest Update: July 2024