Course Title: Macroeconomics

Course Code: MBA 305

Assignment
Topic: Malaysian Business Cycle 1990-2015

Submitted to:
Mashrifa Islam
Adjunct Faculty
School of Business
University of Liberal Arts Bangladesh

Submitted by:
Hira Mohammad Abdullah
Nabila Nusrat Nishi
Fariha Anjum
Mst. Zakia Afrin
Abdullah Al Farial
ID No. 172051017
ID No. 171051082
ID No. 163051066
ID No. 162051019
ID No. 171051077

MBA 305: Section 1

Spring 2018

University of Liberal Arts Bangladesh

April 20, 2018
Table of Content

Contents Page No.

Introduction 1

Research Methodology 2

Limitations 2

Malaysian Business Cycle 1990 - 2015 3

Business Cycle Analysis 3-4

Structural Transformation 5
Relationship between the trend and Malaysian
5
economic, political, and cultural situation
Findings 6

Recommendation 6

Conclusion 7

ii

ii
Introduction:
Malaysia had its independence in 1957. Its development plans including the economic ones have
always tried to strike the social balance among its multi-ethnic population which consisted of
Malays, Chinese, and Indians comprising 50%, 33%, and 9% of the population respectively in
addition to indigenous tribes.

On the back of political stability, inflows of foreign direct investment, and export-oriented
industrialization, Malaysia has successfully transformed itself into an upper middle-income
country. It had a population of 29.2 million and purchasing power parity–based GDP per capita
of US$17,748 in 2014.

Malaysia has remained an upper middle-income country since the 1980s. Because the
government is seeking to advance the country to the high-income group by 2020, it is attempting
to determine the causes of this long stagnation so that it can intervene effectively.

Malaysia is largely considered a success story when it comes to economic growth over the last
century. In the late nineteenth century it had been a major supplier of primary products to the
industrialized countries, Malaysia's main export items were rubber, contributing almost 60
percent to the total export value, and tin, contributing about 12 percent.

However, Malaysia has long reduced its dependence on agricultural exports and has turned their
attentions to foreign earnings. Manufacturing products have overtaken agricultural products as
the main foreign exchange earner. This is exemplified by the fact that Malaysia is now one of the
biggest producers of semi-conductors in the world. Foreign direct investment (FDI) has been an
important source of economic growth for a developing country like Malaysia, bringing with it
much needed capital investment, technology and management knowledge for economic growth.

Malaysia has one of the highest standards of living in South-east Asia, mostly because of its
expanding industrial sector propelled the country to an 8%-9% yearly growth rate from 1987 to
1997 . As government expenditure was often used for stimulation, central planning has always
been a major factor in the Malaysian economy.

1
Research Methodology:
The data we have used for our research include Real GDP of Malaysia. All data have been
collected for the period of 1990-2015. The nature of the present study does not necessarily
require the use of primary sources for data series therefore all data used in this report are
primary.

➢ Sources of Data
• Department of statistics, Malaysia

Limitations:
Our report is completely based on information obtained from secondary sources. Hence, we
cannot guarantee the validity and reliability of the data used during the analysis. The methods of
analysis used and the concepts applied will be limited to what we learnt in our macroeconomics
and statistics course.

2
Malaysian Business Cycle: 1990- 2015

Malaysian GDP Growth Rate

1990 - 2015
12.00%
9.89% 9.83% 10.00%
9.55% 9.43%
10.00% 8.89%
9.01% 8.86%
9.21% 7.32%
8.00% 6.78%
5.79% 6.98% 6.01%
5.58% 5.47%
6.00% 6.14% 4.69%
5.29%
5.39% 5.03%
5.33%
Percetage of GDP

4.00%
Growth Rate

3.32%
2.00%
0.00%
0.52%
-2.00%
-2.53%
-4.00%
-6.00%
-7.36%
-8.00%
-10.00%
1999

2012
1990
1991
1992
1993
1994
1995
1996
1997
1998

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011

2013
2014
2015
Year

Business Cycle Analysis:

Malaysia economic growth has rapidly sturdy in the early 1990s. Average of GDP is about 7 to 9
% in early years. From 1990 to 1997 average GPD growth is nearly 9%. But Malaysia faced
deeply recession during year 1997 till 1998 on Asia Financial Crisis. Malaysia's GDP influence
much by shrink more 7 %.

Regardless, the GDP suffered a sharp 7.5% contraction in 1998. To rejuvenate the economy,
massive government spending was made and Malaysia continuously recorded budget deficits in
the years that followed. Economic recovery has been led by strong growth in exports,
particularly of electronics and electrical products, to the United States, Malaysia's principal trade

3
and investment partner. Inflationary pressures remained benign, and, as a result, Bank Negara
Malaysia, the central bank, had been able to follow a low interest rate policy. The Malaysian
economy recovered from the 1997 Asian Financial Crisis sooner than neighboring countries, and
has since recovered to the levels of the pre-crisis era with a GDP per capita of $14,800.

Gross domestic product growth recovered to 6.3% in 1999 and increased to 7.9% in 2000, but
was reduced to .7% in 2001 as the global economic slowdown and the aftermath of the 11
September 2001 terrorist attacks on the United States helped produce a 10.6% reduction in
exports. In 2002, the economy continued to recover, reaching an annual growth rate of about
3.5%. In 2003, growth was 4.5 percent, second in Southeast Asia to Thailand, in spite of a
difficult first half, when external pressures from Severe Acute Respiratory Syndrome (SARS)
and the Iraq War led to caution in the business community. The recovery was driven by exports
an the use of government funds to prop up ailing companies and finance employment-providing
infrastructure projects. Growth was 7.2 percent in 2004, the fastest in four years.
Semiconductors, hard-disk drives and other electrical and electronic products accounted for
around half of Malaysia’s exports. Growth was 5.1 percent in 2005. In November 2005,
Malaysia raised its benchmark interest rate for the first time in more than seven years to curb
inflation. Again exports were strong.

During the Global Financial Crisis in 2008-2009 growth slowed and unemployment rose in
Malaysia as its palm oil, rubber, oil and natural gas sectors were hit by falling commodity prices
and its electronics industry and exports in general were hit hard by declining global demand.
During the economic slowdown Malaysia into its first recession in a decade. Growth reached a
record low of -6.2 percent in the first quarter of 2009 but bounced back reaching an all time high
of 5.9 Percent in the third quarter of 2009. The economy contracted by 1.7 percent in 2009.

According to the Malaysian Institute of Economic Research (MIER), economic growth was 7.2
percent in 2010, 5.1 percent in 2011 and 4.5 percent in 2012. In 2010, Malaysia's economy
rebounded from a recession in 2009 after expanding 10.1 percent year-on-year in the first quarter
of 2010, its fastest pace in a decade. In July 2010, the government cut fuel subsidies by about 3
percent to curb its fiscal deficit and said more hikes are expected. Gross Domestic Product of
Malaysia grew 4.7% in 2013, 6% in 2014 and 5% in 2015.

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Structural Transformation:
ISI was used to realize industrialization where machinery and raw materials were imported, and
then industries, in turn supplied the input required for the modernization of the agricultural sector
and consumer goods demanded. The rationale for the implementation of ISI was due to rapid
population growth and the realization that heavy dependence on the agricultural sector would not
absorb the expected increase in the labor force. Therefore, there was a need to diversify the
economy to eliminate total dependency on rubber and tin. Nevertheless, there were drawbacks in
ISI. The industrial sector was inefficient in operation and the size of the domestic market was
small. As such, small domestic markets could not make the long-term requirements of this
strategy sustainable, and the objectives of the government for setting up this strategy were not
realized. Hence, the country changed from ISI to EOS. EOS was used to realize industrialization
where goods were produced locally for export. Generally, this was perceived as better than the
ISI strategy, partly because it was easier to detect the effectiveness of export promotion policies
as performance could easily be observed. Generally, the ISI policy was prone to domestic
assembly and capital-intensive, compared to the pre-implementation of the ISI policy that mostly
imported from abroad.

Meanwhile, a low-wage, labor-intensive production technique was used in EOS to attract

investors. EOS gave industries greater opportunities to enlarge markets and achieve economies
of scale.

Relationship between the trend and Malaysian

economic, political, and cultural situation:
Malaysia economic is still considered optimistic compared to other country as what is mentioned
above, that Malaysia currency is getting stronger. It is good news for potential foreign investors.

Malaysia receives a score of +0.13 for the factor "Political Stability" in the World Bank's
Governance Indicators 1996-2008, which means Malaysia politic is 'relatively stable' compared
to the other country. Political stability leads to economic stability. It's a key attraction to foreign
investors. Foreign investors will feel more reassure to invest in Malaysia.

Malaysia is a multicultural and multilingual society. There are three main races in this country,
which is the Malays, who formed a large community and play a ruling role in political, the
Chinese and the Indians. Lifestyle here is becoming more and more modern due to great
exposure to the western culture. Above all makes investors to invest in Malaysia.

5
Findings:
There are the findings:
➢ Strong fundamentals growth
➢ Substantial poverty reduction
➢ Improve quality of life and standard of living
➢ Political stability and harmonious society
➢ Supportive government policies towards FDI
➢ High-quality social services
➢ Well-developed infrastructure
➢ Educated and trainable workforce
➢ Competitive investment incentives
➢ Private sector led growth
➢ Investment in human resource development
➢ Supportive fundamental policy framework, particularly in agricultural and industrial
sectors and service sectors.

Recommendation:
For smooth the Fluctuation of business cycle, Malaysian Government should:
➢ Open up the service sector more to raise economic efficiency and private investment
➢ Need more improvement for foreign investment
➢ Enhance Competition across all sectors to drive innovation, to create job, to grow the
most productive firms.
➢ Raise SME’s productivity and link them to global Markets
➢ Increase the wages, so that educated workers willingly join to productivity
➢ Create tax cut formula for lower income citizen.

6
Conclusion:
In conclusion, it is without doubt that Malaysia with Malaysian impressive workforce and strong
economy is already an attractive destination for investors from China India and the Middle East,
but they still do have shortcomings that may put them off. It is our opinion that the Malaysian
government with some effort can rectify this shortcoming and make Malaysia an undisputed
target for foreign investors.