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Domestic demand and business sentiments in Malaysia remain upbeat

Petaling Jaya, 6 June 2013 — In its latest edition, Deloitte University Press’ Asia Pacific Economic Outlook recently reported that the first quarter has been reasonably positive for the Malaysian economy having tided over the elections, suppressed production at the start of year and external headwinds.

“Not only was the country’s 56-year-old government re-elected for another five-year term, signaling policy stability, the economy also expanded in the 5–6 percent range, as it has on an average since 2011. The growing economy is forecast to attract higher foreign direct investments this year in various sectors, including electrical and electronics, real estate, aerospace, solar energy, and medical services,” noted Tan Theng Hooi, Country Managing Partner, Deloitte Malaysia.

Malaysia maintained status quo in Q1 2013

Malaysia maintained status quo in Q1 2013, having achieved real GDP growth of 5.6 percent year on year in Q1 2013 bolstered by higher domestic demand, even as real exports declined an estimated 1 percent.

Private consumption growth continues gaining momentum

Private consumption, which accounts for nearly 50 percent of the GDP, has been a major driver of the Malaysian economy for the past eight quarters, with growth significantly exceeding exports. Exports in Q1 2013 were limited by falling sales of vegetable oils and manufactured goods, which together constitute more than 60 percent of Malaysia’s total exports.

Double-digit sales to AFTA seen

Sales of electronics and electrical goods were particularly hit. Geographically, while the country’s exports to the slowdown-affected markets of the European Union and United States suffered, sales to the ASEAN Free Trade Area (AFTA) increased in double digits. The AFTA now accounts for nearly 30 percent of Malaysia’s exports, up from 27 percent in 2012.

Domestic demand and business sentiments remain upbeat

For Q2 2013, GDP will likely continue expanding in the 5–6 percent range, supported by robust domestic demand. The industrial production index for Malaysia registered a 0.2 percent year-on-year decline in Q1 2013, due to lackluster performance by the manufacturing and mining sectors. While business closure for the Lunar New Year celebrations suppresses output in the first quarter of each year, this year was particularly impacted by export challenges. However, the outlook for the rest of 2013 appears encouraging, with positive consumer and business sentiment.

Challenging exports and improved FDIs expected

Even as local consumption will likely remain upbeat, exports could demonstrate a slight uptick in the second half. In terms of foreign direct investment (FDI), the government expects FDI of $12 billion in 2013, compared to nearly $10 billion in the last year.

Persistent debts — a lingering concern

However, a lingering concern in the Malaysian economy is the level of debt fueling domestic demand. Household loans and liabilities rose 13 percent year over year in Q1 2013 and are estimated at more than 150 percent of the personal disposable income.

Loans and liabilities are expected to continue their double-digit rise in Q2 2013, with no increase likely in the benchmark interest rate, which has remained at 3 percent since Q3 2011. With nearly half the household debt incurred to buy houses, the economy is vulnerable to any sudden slump in home prices, which have risen an average 9.5 percent year over year for the past eight quarters.


Overall, the first quarter has been reasonably positive for the Malaysian economy, registering steady growth despite external headwinds. The coming quarter will likely be similar, with domestic demand driving the economy but exports remaining a challenge and high levels of household debt posing a persistent risk.

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Chayenne Tan
Deloitte Malaysia
Job Title:
Senior Manager, Marketing & Communications
+ 603 7723 6500 ext 6310
Geraldine Tan
Deloitte Malaysia
Job Title:
Director, Marketing & Communications
+ 603 7723 6583
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