The economic climate and future of Malaysia Theory

Today, Malaysia is a middle-income country with a multi-sector focusing on services and manufacturing, one of the world’s largest exporters of semiconductor devices, electrical goods, and information and communication technology (ICT) products. (U.S. Department of State, 2010). From the perspective of economic growth which means growth in the level of national income in one fiscal year, it is caused by improvements in the quantity and quality of the factors of production like land, labor, capital and enterprise of a country. (Zambia virtual, 2010). Malaysia performed well in the above four factors of production. However, Malaysia still cannot be regard as a specialized country with outstanding performance in any sector. This can be proved in Figure 1, Malaysia Gross Domestic Product percentage per annum (GDP % p.a.) in 2010.

GDP is a term of total market value of all final goods and services produced in a country in one year and it includes consumption, gross investment, government expenditure, and net export. ( Investerword.com, n.d.). From Figure 1, GDP contribution from Agriculture, forestry & fishing sector is 3.8% p.a., mining sector is 3.2 %p.a., Manufacturing sector is 6.2% p.a., Construction sector is 5.0% p.a., and Services sector is 6.6% p.a. (Prime Minister’s Department Malaysia, 2010). All in all, from the statistical figures shown, there is no significant GDP contribution by any industries to Malaysia economy. Therefore, in 10th Malaysia Plan (MP), Government has policies out 12 NKEAs with major focus on service sector as a new source of growth in 10th Malaysia Plan (MP). For example, by categories oil and gas, palm oil and related products, and agriculture into one agriculture industry, electrical and electronic into manufacturing industry, and Great Kuala Lumpur with geographical focus on overall economic growth. Tourism, information and communications technology (ICT), financial service, education services, private healthcare, and even business services are group into service industry.

Malaysia is clear with its intention to become a Knowledge-based economy with the allocation of 40 % of RM 230 billion budget to non- physical development which is services to improve Malaysian living standards in Figure 2. The term “knowledge-based economy” means an economy that reliance on production, distribution, and use of knowledge and information” (Ghirmai T. , 2010). In a K-based economy, knowledge is the most critical factor of production especially in this technological advance and global competition era. It generates more wealth than other traditional factors of production, land labor and capital. Malaysia aims to transform itself from production-based economy where it is driven largely by traditional factors of production into a K-based economy with education and skilled human capital as a source of economic growth in 21th century. Malaysia is looking forward to achieve economic growth like Hong Kong, Korea, Singapore and Taiwan due to these countries large investments in education. In addition, by targeting to fulfill K-based economy, it is projected that Malaysia’s GDP will increase 4 fold within 20 to 25 years (Ghirmai T. , 2010). Besides, Budget 2011 also focuses its effort in private investment, human capital development, enhance citizens lifestyle, and public service delivery in order to transform Malaysia into developed and high-income economy with the foundation of knowledge-based economy.

Malaysia targets to achieve GDP growth of 6 percent per annum in 2011-2015 via 10th Malaysia plan. The key to drive economic success in the next five years is on private investments. If the private investment cannot grows at 12. 8% or RM115 billion annually, economic growth will drop below 6% per annum. Therefore, Government is working hard to pull RM 115 billion in private investment with 12.8 % p.a. However, it seems unrealistic to achieve this goal with 2 % p.a. in previous plan, 9th MP from years 2006 to 2010. ( Dr. Lim Teck Ghee, 2010). This can be showed through Consumer Price Index (CPI) which is an inflationary indicator to change in the price level of products and services purchased by household and it consist housing, electricity, food, and transportation. (Investorwords, n.d.). In Figure 3, CPI has grows from 0.6 % p.a. to 1.4% p.a. from 2009 to 2010. This growth denotes disinflation, a term that describe prices of output in the economy are increasing, but the speed of price incremental is slowing. (Forextraders, 2010). This increase in price level on goods can be contributed by remove government subsidies on necessities like petrol, flour, cooking oil, and sugar. (MIDF research, 2010). Increase in CPI can lead central banks to raise rate and currency will be appreciated with higher interest rates charged. (Tim McMahon, 2008). Thus, disinflation actually bring advantages to economy growth and establish good environment for attaining 10th MP goals.