Malaysia’s long road to reform: opportunities and challenges

Financial stresses a potential drag on asian economic prospects

• Discussions with Malaysian stakeholders suggest that the key task for Malaysia’s long-run prospects is to rectify previous policy mistakes to unleash the potential for growth.
• The cyclical outlook remains broadly positive, with consumption showing resilience despite losing the one-off boosts from pension drawdowns and excess savings.
• The government is proceeding cautiously with its pace and sequencing of reforms, Working relationships with the bureaucracy are also carefully managed.
• A key strategic aim should be to rationalize and consolidate the fragmented patchwork of policies and frameworks in areas such as social welfare and investment promotion.
• Ultimately, the government is clear-eyed about the challenges facing Malaysia’s economy. Achieving much-needed political stability will give it the space to pursue harder reforms.

Vietnam’s economy is on shaky ground

• Vietnam’s 1Q23 GDP figures reveal underlying weaknesses due to a slowdown in external demand. Manufacturing growth has also suffered as a result of poor export performance.
• Private consumption is also under pressure, with higher inflation, higher borrowing costs, and a bleaker labour market weighing on consumer and business sentiment.
• Real estate is another source of downside risk, with project suspensions and the closure of construction firms among the causes of worry. Policy remedies are on the way.
• There are upsides including continued foreign investor interest and accelerated public sector investment. Much will hinge on policymakers’ agility in rectifying shortcomings.

Regional updates

• China’s uneven recovery continues, with weak industrial profits suggesting an element of fragility. Foreign investor confidence is still shaky given recent mixed signals from Beijing.
• South Korea’s non-manufacturing sector provides a glimmer of hope for a turnaround, while business and consumer sentiment show tentative signs of recovery.
• The Philippines’ President Marcos Jr. is beginning a process of constitutional amendments of an economic nature. He is also banking on a new sovereign fund to expedite growth.

Read more: CAA-Weekly-03-Apr-2023.pdf