Malaysia is the 4th largest economy of Southeast Asia and has continued to perform strongly in recent years, due to a strong global demand for electronics, increased demand for commodities, such as oil and gas, an improving labour market, a pro-cyclical budget and ample infrastructure pending. However, the government's declining expenditure as well as lower public and private investments already reduced economic growth to 4.3% in 2019. Due to the COVID-19 pandemic, the growth has been sharply reversed to -6% in 2020. Nevertheless, the IMF's October 2020 forecast is expecting a strong rebound at 7.8% in 2021 and a stabilisation at 6% in 2022, subject to the post-pandemic global economic recovery. In its most recent January 2021 update of the World Economic Outlook, the IMF has revised its GDP growth projections for Malaysia to 7% in 2021 and 6% in 2022 (representing a difference from October 2020 WEO projections of -0.8% in 2021).
During the past few years, a political crisis, low oil and commodity export prices and the slowdown in China have deeply affected Malaysia’s economy, putting pressure on the country's finances. Malaysia has the highest debt levels in the region at 67.6% of GDP in 2020 (IMF, 2021), with spending increasing faster than GDP. The government faces various challenges, including the weakening of the Malaysian currency, the drop in oil prices (since oil revenues account for 30% of state revenue) and the fall in commodity export prices. Inflation went into negative territory in 2020 at -1.1% and is expected to increase to 2.4% in 2021, then 1.9% in 2022. (IMF, 2021).
The economic, health, and social crises associated with COVID-19 have reshaped economies around the world, opening up new ways of working and doing business, and new ways for consumers to access products and services, many of them driven by technology. Will these changes persist post-COVID? What are businesses likely to do and how is this likely to impact productivity growth and jobs? What should governments do to support this IT-enabled transformation, and what should they do to cushion some of the challenges from disruption? How will the pace of vaccination roll-out help productivity growth? How can Malaysia become more competitive?
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