The economic context of Malaysia

Economic Indicators

Malaysia has successfully transformed its economy, shifting from an agriculture and commodity-based economy in the 1960s to one driven by manufacturing and services sectors. Figures from the Central Bank show that GDP grew by 5.1% in 2024 (up from 3.6% in 2023), driven by strong domestic demand and a rebound in exports. Domestic growth was supported by higher household spending, backed by favourable labour market conditions, supportive policy measures, and healthy household balance sheets. Investment growth was bolstered by strong investment approvals and progress in multi-year projects by both the private and public sectors. Externally, exports recovered thanks to steady global growth, a continued tech upcycle, and higher tourist arrivals and spending. This supported the current account, leading to a surplus of 1.7% of GDP in 2024 (up from 1.5% in 2023). Growth is expected to slow to 4.7% in 2025, due to a moderation in investment growth, partly driven by increased global uncertainty.

Concerning public finances, the 2025 budget projects a reduction in the federal government deficit to 3.8% of GDP, down from an estimated 4.3% in 2024. Fitch Ratings expects federal government revenue/GDP to remain stable at 16.5% in 2025, with new measures like a tax on individual dividend income and an enhanced sales and service tax generating limited additional revenue. This will be partly offset by lower petroleum-related revenue, projected to account for 18% of total revenue in 2025. The debt-to-GDP ratio decreased to 68.4% in 2024 (from 69.8% one year earlier) amid nominal GDP growth and is expected to remain stable over the forecast horizon (IMF). Inflation has remained stable at around 2% (year-on-year) in 2024. With the expected implementation of RON95 gasoline subsidy reforms in mid-2025 and tighter labour market conditions, average headline inflation is projected to increase to 2.6% in 2025 (IMF's latest available data). Risks to this outlook are mainly to the upside, including potential global commodity price shocks and wage pressures from increases in the minimum wage and civil servants' pay.

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 3.5% in 2024 (IMF), but the youth unemployment rate is more than triple (10.4%, Statistics Malaysia) 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. Overall, the IMF estimated the country’s GDP per capita (PPP) at USD 41,021 in 2024.

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 17.2 million people out of a 35.1 million population in 2024. Agriculture employs around 10% of Malaysians and contributes to 7.8% 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. Palm oil, rubber, cocoa, and wood products make up roughly half of the total output, while other key contributors include tropical fruits and rice. The poultry and pork industries are well-developed and relatively strong. The country depends on cereal imports, as local production covers only a quarter of consumption. For 2024/25 (July–June), imports are forecast at 7 million tonnes, 6% above average. Maize imports, the largest share, are projected at 3.7 million tonnes, while wheat imports are expected to reach 1.7 million tonnes, up 9% due to rising demand for bread and bakery products. Rice imports in 2024 are set to rise to 1.8 million tonnes due to lower domestic production (data FAO).

Industry contributes to around 37.7% 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 and has attracted significant foreign investment, which played a major role in the transformation of its economy. Malaysia's industrial production index grew 3.8% in 2024, up from 0.7% in 2023, driven by growth across all sectors. The Department of Statistics Malaysia reported a 4.4% rise in the manufacturing index, while the mining and electricity indices increased by 0.7% and 5.6%, respectively.

The service sector employs the majority of the active population (over 62%) and accounts for 53.4% of GDP (World Bank) which is due mainly to healthcare services, transport, distributive trade and tourism. Tourism is one of the main contributors to Malaysia’s GDP, comprising around 15% of GDP. In 2024, the country recorded just over 25 million international tourist arrivals, marking a 24.2% increase from the previous year. Figures from the Ministry of Economy show that retail trade grew 6.1% to MYR 764.9 billion in 2024, wholesale trade rose 4.7% to MYR 782.1 billion, and motor vehicle sales increased 6.5% to MYR 219.1 billion.

 

Breakdown of Economic Activity By Sector	Agriculture	Industry	Services
Employment By Sector (in % of Total Employment)	9.8	27.8	62.4
Value Added (in % of GDP)	7.8	37.7	53.4
Value Added (Annual % Change)	0.7	1.3	5.2

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

 

Find more information about your business sector on our service Market reports.

 

 

Find out all the exchange rates daily on our service International currency converter.

 

Indicator of Economic Freedom

Definition

Definition:

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.}}

Score:

74,4/100

World Rank:

22

Regional Rank:

5

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

 

Business environment ranking

Definition

Definition:

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.

Score:

7.24/10

World Rank:

27/82

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

 

Sources of General Economic Information

Ministries

Ministry of Finance
Ministry of International Trade and Industry
Ministry of Domestic Trade and Consumer Affairs

Statistical Office

Department of Statistics Malaysia

Central Bank

Central Bank of Malaysia

Stock Exchange

Malaysia Stock Exchange (Bursa Malaysia)

Economic Portals

Business Times