Discuss about the Malaysian Economic Performance for the period 2005-2014.
This economy is located in Southern Asia and is ranked 3rd in terms of its size. The 1st two are Indonesia and Thailand. In the world’s rank, its ranked 36th largest. An analysis of the wealthy of Southern Asia based on GDP per capita, the result shows that it is still the 3rd richest economy. This is an economy of rapid economic growth. Worldbank.org (2017) pointed out that this economy in an upper-middle income and that it is highly open. They also noted that growth and development commission has noted Malaysia to be among the thirteen economies that have recorded an annual growth rate of over 7% for many years. The economy has performed well in the past 25 years and have pushed its poverty level to the ground. The economy can be argued to nearly eliminating the existence of poverty which is a major issue for both the developing and developed economies. The population of Malaysia was 26,477,000 in 2005 compared to 30,709,000; this is from the data obtained from the International Monetary Fund (IMF) (2017).
This economy has an industrialized market economy that is new, open and state-oriented. It is highly competitive with improved easiness of doing business; it is ranked 14th in the world. Heritage.org (2017) argued that the competitiveness of this economy is accelerated by economic reforms. Regulatory adjustment have been undergone in the financial sector which include lowering the limits imposed earlier on financial subsectors foreign ownership. Malaysia is a major trading economy. Its imports and exports combined accounts for 134% of its total GDP. The biggest market for Malaysian export is Singapore at 13.6% of its total exports followed closely by China at 12.6%. Tin and rubber were the natural raw material initially produced in this economy dated 1970s, but the economy have diversified to be a leading producer of electrical appliances, parts and components, natural gas, and palm oil.
GDP
Brezina (2012) defined GDP as the monetary value of goods and services a nation produced in a given period (usually a year). Basically it is a sum of everything that was bought for money during the given period. Its components are; government’s expenditure be it on investment or other activities, consumption expenditure for everything bought by a consumer, investment expenditure, and the net export. The measurement is dome annually. This measure helps in measuring economic performance as the comparison of an annual GDP and the previous year’s gives the economic growth rate. GDP is normally calculated in nominal terms (current prices), but in some cases at constant prices (real GDP); this is when inflation changes are taken care of (Amadeo, 2017). The base year for the Malaysian real GDP on the past years is 2010.
Malaysia Real GDP Growth Rate
Growth rate is the change in the size of the economy recorded from one quarter to another (Kwak, 2009). It tells us how the size of the economy has changed. The economy could either expand or it can shrink. Constant prices is also used in the estimation of real GDP growth rate. In this case, the comparison is done on taking the real GDP instead of the nominal GDP. Growth rate is an important measure of economic performance as it helps the policy makers in understanding the actual performance of the economy. The concept of real GDP growth may result in making uninformed decision and real GDP may increase but no record of significant economic growth.
Fig: Malaysia real GDP growth rate
For the period 2005 to 2014, the Malaysian economy has had a good real GDP growth rate. From the diagram it can be deducted that for 9 years the growth rate was above 4.5%. It was only on a single year (2009) when this economy’s real GDP growth rate was on its lowest level; the negative record was made during the 2009 global financial crisis. The trend for Malaysian real GDP growth rate is positive. From 2005 to 2007, the rate was rising; it rose from 4.976% to 6.299% during this period. There was a fall from 6.299% in 2007 to 4.832% in 2008 before the negative record of 2009. This indicates that the impacts of 2009 GFC started in 2008. The recovery from the GFC was fast and rapid; it is in 2010 when Malaysia record of growth rate was the highest of the 10 years (7.528%). Although the growth rate for the following years were lower, the 2014 performance was high. This is an indicator that the growth rate will continue improving.
Malaysia Real GDP per Capita
GDP per capita is calculated by dividing the country’s GDP by its population. It is thus a measure of how much each person contributes to GDP. The greater the GDP per capita, the higher the standards of living (Viswanathan, 2017). An economy with high living standards is taken to be of better economic performance.
Fig: Malaysia Real GDP per Capita
Key: Series 2 – Australia
The trend for Malaysian real GDP per capita is positive. Observation from the graph above (Series 3) shows that this value has gone up year after year. The only period this economy experienced a fall in GDP per capital was from 2008 to 2009, but it has been on the rise since then. Series 2 represents the GDP per capita for Australia. The comparison with Malaysia shows that, Australian living standards in greater. In facts it is more than twice that of Malaysia. The trend for Australian GDP per capital is also positive. However, the fact that Malaysians’ living under poverty is less than 1% and that for Australia is on a higher proportion, the GDP per capital is not a good estimator of living standards.
Government’s Measures – GDP
The Malaysian government goal is to attain a high level of economic growth so as to rise to the level of world class developed economies. It has recognized some of the most important areas that drives its economic growth; one of such areas is on trade. As noted earlier, this economy is trade oriented and it contributes much to its GDP. There are many policies implementations that has been put into place to facilitate easiness of trading. Foreign investment has been improved by the elimination of the various national equity requirements. Trade freedom has been increased since the trade regime has been made relatively open. The government has prioritized improving its fiscal health as one of the measures to improve its economic growth; although this has exhibited a slow progress, it continues to be a priority. The government has an important goal of poverty eradication and thus has raised the tax on top individual income to 28%. This has enabled income redistribution. In turn, this has raised its GDP since lower poverty level has contributed to increased consumption of goods and services. This economy has proper policy measure to boost its economic growth rate since form the graph analysis of the real GDP growth rate it can be observed that every year the economy records a lower growth, it is followed by an improved rate the following year.
Unemployment Types
There are several types of unemployment; one is the frictional unemployment experienced by those who quit jobs that are not satisfactory with an objective of getting employed elsewhere. This type may be voluntary and thus present in all economies. Second is the cyclical unemployment since there exist business cycles. Unemployment increases when businesses are performing poorly (Nash, 2017). Third is the structural unemployment resulting from technological advancements; new skills introduced in the market may not be held by all workers and thus those without them maybe laid off. Rather, the available job vacancies are not matching those held by those who are jobless. Lastly, the seasonal unemployment resulting from periodic production or changing climates.
Unemployment Trend in Malaysia
Fig: Unemployment in Malaysia
Unlike many other world economies, Malaysian unemployment rate is on a negative trend. The rate was falling from 2005 to 2007, it rose slightly in 2008 and sharply in 2009. It continued falling in the following years until 2013 when the economy performed poorly; it rose slightly but fell to a very low level of 2.85% in 2014. The economy has been able to provide sufficient jobs owing to its fast growth rate.
Government Measures – Unemployment
In order to improve the employment level which means lowering the unemployment rate, the Malaysian government has imposed various measures. One of them is by ensuring a fast growing economy. The achievement of this is by influencing its fiscal policies. In order to stimulate the economies to perform well and achieve expansion so as to employ additional labor, the government has lowered the corporate tax. This would mean that businesses would operate at a lower cost since corporate tax is part of their production costs. On the other hand, there has been an increased spending by the government which directly creates more jobs. The Malaysian government has also removed rigidity in the labor regulations by making them more flexible. Further, the government has ensured the absence of mandated minimum wages.
Inflation Trend in Malaysia
Baiden (2012) noted that the presence of inflation is when the average price level of goods and services in an economy rises rapidly. It is measured by the GDP deflator and the consumer price index. The purchasing power falls with the presence of inflation and thus it limits economic growth.
Fig: Malaysia Inflation rate
The Malaysian inflation rate is on a negative trend. The rate was on average very high in the periods before the 2009 GFC, but on average lower after the GFC. The inflation rate was very high in 2008 (5.429%), and lowest in 2009 (0.597%). This was a fast drop and thus the Malaysian economy measures of ensuring stable prices are effective. On average, the rate has been on the rise since the occurrence of the 2009 GFC.
Causes of Inflation
Inflation is caused by shortage of supply or an increased demand. At a lower supply, any increase in demand causes the supplier to raise the price (Moosa, 2014). Economists referred to this as demand-pull inflation. There are many factors that influence demand; increased income level or a reduced level of unemployment. At lower unemployment level, most people have jobs and thus they have income to demand goods and services. The other cause is based on the cost of raw materials; when the prices of raw materials rise, the producers are forced to push up the output prices. Economists referred to this as cost-push inflation.
Government Measures – Inflation
Rao, Radhakrishna, Mishra & Kata (2016) noted that the ministry of domestic trade and consumer affairs (KDPNHEP) checks and monitors the prices offered by traders to the consumers. This ensures that there is no increments in the prices for goods. The government introduced this ministry as a measure to contain inflation rate. Just in case there is a high inflation rate, the government employs the fiscal policies of tax rise and cutting of government spending, or rather the monetary policy of reduction in money supply or raising of interest rate.
Conclusion
For over 25 years this economy has experienced a growth rate of above 7 % and it is still forecasted to be sustained in the future owing to the continuing growth of its financial sector and also its competitiveness. Through improved easiness of going business, this economy’s economic performance is projected to continue rising. Through income redistribution, an economy achieves the objective of poverty eradication and subsequently raising the economy’s GDP. At very high poverty levels, most people in the economy do not have sufficient income to facilitate their consumption need and thus consumption which is a component of GDP remains low. The continued income growth and stability in the labor markets is expected to continue stimulating demand which is anchored to its economic growth. The growth of international trade has contributed to the expansion of the external sector which has made the Malaysian economy’s outlook to look more diversified.
Although the economy was hit by the 2009 global financial crisis, there was a rapid recovery as from 2010 when on average, a growth rate of 5.7% annually was experienced. This was much higher than the average growth rate experienced between 2000 and 2008 after this economy recovered from the 1997-98 Asian Financial Crisis. There have been many policy measures behind the accelerated growth of this economy. Fiscal consolidation is one of the measures the Malaysian government has committed to in addition to the implementation of various reforms. It can thus be concluded that government intervention measures are the major reason for the improved growth of the Malaysian economy. Other economies may analyze the riskiness of the policies implemented in Malaysia and their effectiveness; if found effective, they should go ahead and implement them to promote their economic health.
References
Amadeo, K. (2017). What makes Real GDP so Incredibly Real? The Balance. Retrieved 9 August 2017, from https://www.thebalance.com/what-is-real-gdp-how-to-calculate-it-vs-nominal-3306040.
Baiden, J. (2012). Inflation Targeting: Why the value of money matters to you. Bloomington: Xlibris Corporation.
Brezina, C. (2012). Understanding the gross domestic product and the gross national product. New York, NY: Rosen Pub.
Heritage.org. (2017). Malaysia Economy: Population, GDP, Inflation, Business, Trade, FDI, Corruption. Heritage.org. Retrieved 9 August 2017, from https://www.heritage.org/index/country/malaysia
Imf.org. (2017). Report for Selected Countries and Subjects. Imf.org. Retrieved 11 August 2017, from https://www.imf.org/external/pubs/ft/weo/2016/02/weodata/weorept.aspx?sy=2005&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&pr1.x=39&pr1.y=13&c=548&s=NGDP_R%2CNGDP_RPCH%2CNGDPRPC%2CPCPI%2CPCPIPCH%2CLUR%2CLP&grp=0&a=.
Kwak, J. (2009). GDP Growth Rates for Beginners. Baselinescenario.com. Retrieved 11 August 2017, from https://baselinescenario.com/2009/04/30/gdp-growth-rates-for-beginners/.
Moosa, A. (2014). Quantitative easing as a highway to hyperinflation. Singapore: World Scientific Pub. Co.
Nash, J. (2017). Three Types of Unemployment: Cyclical, Frictional & Structural. Study.com. Retrieved 11 August 2017, from https://study.com/academy/lesson/three-types-of-unemployment-cyclical-frictional-structural.html.
Rao, N., Radhakrishna, R., Mishra, R., & Kata, V. (2016). Organized retailing and agri-business: implications of new supply chains on the Indian farm economy. New Delhi: Springer.
Viswanathan, B. (2017). What is the meaning and significance of GDP per capita? Why does India have such a low GDP (nominal) per capita? Quora.com. Retrieved 10 August 2017, from https://www.quora.com/What-is-the-meaning-and-significance-of-GDP-per-capita-Why-does-India-have-such-a-low-GDP-nominal-per-capita
Worldbank.org. (2017). Malaysia Overview. Worldbank.org. Retrieved 9 August 2017, from https://www.worldbank.org/en/country/malaysia/overview.
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