By Yasmin Ramlan
SHAH ALAM, Aug 21 — Malaysia’s better-than-expected gross domestic product (GDP) growth last quarter reflects strong public confidence in the local market, according to an economist.
Prof Emeritus Barjoyai Bardai said this has led to robust private and local spending, which has been identified as among the contributing factors behind the 5.9 per cent year-on-year economic growth recorded in the second quarter, up from 4.2 per cent in the previous quarter.
“Household spending, supported by additional subsidies and other factors, has been a key driver. This also signals that households are gaining more confidence in the economy and future prospects.
“As a result, they are spending more, which has led to an increase in imports compared to exports,” he told Selangor Journal.
Barjoyai said this indicates a higher interest in spending among Malaysians than in other countries like neighbouring Thailand.
This year, the Federal government has committed to rationalising several subsidies, focusing on targeted assistance rather than the blanket approach adopted previously. Savings from the rationalisation will then be used to provide further assistance to those truly in need.
Among them are targeted aid on electricity bills, with a RM40 rebate given to underprivileged families; increase in cash assistance to middle- and low-income households; and implementing the targeted diesel subsidy.
Independent economist Baayah Baba concurred with Barjoyai that rising consumer demand for local goods is the main factor driving Malaysia’s GDP growth.
“Additionally, the anticipation that public servants’ salary will increase has also led to higher spending, as they are confident about receiving pay raises,” she said, referring to Prime Minister Datuk Seri Anwar Ibrahim’s announcement last week of the up to 15 per cent salary adjustment for government servants.
However, Baayah encourages Malaysians to purchase local products to boost the economy further.
She added that while the strengthening of the ringgit is a positive sign for the economy, the government should not be complacent.
She said the administration must remain vigilant and continue fostering an environment conducive to growth, which will effectively increase investors’ confidence.
The focus should also be on sustaining the economic recovery momentum and enhancing the competitiveness of Malaysian exports in the global market.
Enhancing public confidence
Elaborating further, Barjoyai said that to sustain economic growth, the Federal government must ensure public confidence in the economy remains positive, which would encourage continued spending.
However, he cautioned that rising spending without a corresponding increase in income is unsustainable, as it would raise debt levels, a trend already observed in Malaysia.
“We should be concerned because increased borrowing by Malaysians could have negative long-term effects. If people struggle to manage their debt repayments, it could lead to bad debts and financial crises within families,” Barjoyai said.
According to a Parliamentary reply by the Finance Ministry earlier this year, Malaysia’s household debt accounted for 84.2 per cent of the country’s nominal GDP as of the end of 2023, a slight increase from the 82 per cent recorded in 2018.
The total household debt also reached an alarming RM1.53 trillion, with housing loans making up the largest portion at 60.5 per cent of the total debt. Other significant components included vehicle loans (13.2 per cent) and personal financing (12.6 per cent).
Nevertheless, Barjoyai said Malaysia’s household debt is less severe than Thailand’s, which stood at 91.3 per cent of its GDP in 2023.
Meanwhile, he said it is impossible to sustain economic growth indefinitely, noting that the economy typically follows a regular 10-year cycle, with the last downturn experienced in 2020 lasting about 13 to 14 months.
While the economy began recovering in 2021, Barjoyai anticipates it will continue to grow until 2026.
“After 2026, the economy is expected to decline again, potentially leading to another crisis by 2030.
“This means we cannot expect to sustain constant growth. Instead, we should focus on achieving steady growth and minimising the impact of future downturns,” he said.
