Malaysia: Economic and Political Overview

Economic Overview

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.

Source: World Bank, Latest data available.

Indicator of Economic Freedom

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

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)

Other Useful Resources

National Trade Promotion Agency of Malaysia

Main Online Newspapers

Daily Express
The Straits Times

Economic Portals

Business Times

Political Outline

Current Political Leaders

King: Abdullah Sultan Ahmad Shah (since 24 January 2019)
Prime Minister: Anwar bin Ibrahim (since November 2022)

Next Election Dates

House of Representatives: November 2027

Current Political Context

Malaysian politics saw significant shifts in recent years. The Barisan Nasional coalition, which had governed since 1957, lost its parliamentary majority for the first time in 2018. The 2022 election resulted in a fragmented political landscape, with no coalition securing a clear majority. Following the King’s intervention, Pakatan Harapan (PH) and Barisan Nasional (BN) formed a coalition, and Anwar Ibrahim, after decades in opposition and a decade-long prison sentence on politically motivated charges, was appointed as the 10th Prime Minister. With the Pakatan Harapan (PH) coalition at its head, Prime Minister Anwar Ibrahim continued to lead the Unity Government in 2024. After years of unrest and fluctuating coalitions, the administration concentrated on bringing political stability. In an attempt to rebuild public confidence in the political system, Anwar's administration continued its efforts to combat corruption through various legal reforms, aiming to restore public trust in the political system.
Together with its neighbours Thailand and Indonesia, Malaysia was formally recognized as a BRICS ‘partner country’ in October 2024. This announcement followed Prime Minister Datuk Seri Anwar Ibrahim's confirmation in July that Malaysia had formally applied for BRICS membership. This action seems to be a component of Anwar Ibrahim's continuous plan to preserve Malaysia's independence and non-alignment from a geostrategic and economic standpoint. Additionally, Prime Minister Anwar Ibrahim aimed to maintain Malaysia's economic connections with China while also reaffirming its sovereignty, especially in the South China Sea, where the two countries share overlapping territorial claims.

Main Political Parties

The currently government relies on the support of the following parties/coalitions:

Alliance of Hope (PH) coalition:
- People's Justice Party (PKR): centre-left
- Democratic Action Party (DAP): centre-left, social democracy
- National Trust Party (AMANAH): centre-left, Islamic modernism
- The United Progressive Kinabalu Organisation (UPKO): multiracial political party based in Sabah

National Front (BN) coalition:
- United Malays National Organisation (UMNO): right-wing, known for being a major proponent of Malaysian nationalism
- Malaysian Indian Congress (MIC): right-wing
- Malaysian Chinese Association (MCA): right-wing, represents Malaysian Chinese contingency

Sarawak Parties (GPS) Alliance:
- Parti Pesaka Bumiputera Bersatu (PBB): right-wing
- PRS
- Progressive Democratic Party (PDP): regionalist
- Sarawak United People's Party (SUPP): centre

Sabah People's coalition (GRS), formed by three regionalist parties: the Sabah People's Ideas Party (PGRS), the Love Sabah Party (PCS), and the Homeland Solidarity Party (STAR).
The Heritage Party, the Social Democratic Harmony Party (KDM), and the Malaysian Nation Party (PBM) also support the government.

The opposition blocked is formed by the National Alliance (PN), comprising:
- Pan-Malaysian Islamic Party (PAS): Islamist, far-right
- Malaysian United Indigenous Party (BERSATU): centre-right, nationalism.

Type of State

Malaysia is a multiparty federal parliamentary monarchy operating under the Westminster system. The country comprises of 13 states which enjoy a fair amount of federal decentralization.

Executive Power

The head of state is the Paramount Ruler, commonly referred to as the King. The King is selected from nine hereditary rulers (called Sultans) of the Malay states to serve a five-year term; the other four states (which have titular Governors) do not participate in the selection. The Prime Minister is typically the leader of the party or coalition that commands a majority in the lower house. If no single party or coalition wins a majority, the King has the discretion to appoint a Prime Minister who he believes is most likely to command majority support in parliament. The Prime Minister is the head of Government and holds the executive powers which include implementation of the law and running the day-to-day affairs of the country. The Cabinet is appointed by the Prime Minister from among the members of parliament with the consent of the Paramount Ruler.

Legislative Power

The legislature in Malaysia is bicameral. The parliament consists of the Senate (the upper house) with 70 seats, out of which 44 are appointed by the Paramount Ruler and 26 are appointed by the 13 state assemblies, to serve three-year terms; and the House of Representatives (the lower house) with 222 seats, its members elected by popular vote to serve five-year terms. The King can dissolve parliament on the advice of the Prime Minister. In general, more power is vested in the executive branch of government than in the legislative branch. Legislative power is divided between federal and state legislatures. Each state has its own Government, a cabinet with executive authority, and a legislature that deals with matters not reserved for the federal parliament.

Indicator of Freedom of the Press

World Rank:

119/180

Indicator of Political Freedom

Ranking:

Partly Free

Political Freedom:

4/7

Civil Liberties:

4/7

Political freedom in the world (interactive map)
Source: Freedom in the World Report, Freedom House