Table of Contents

1. INTRODUCTION .......................................................................................................... 1

2. METHODOLOGY .......................................................................................................... 4

3. DATA .......................................................................................................................... 5

 MALAYSIA GDP GROWTH RATE....................................................................................... 5

 MALAYSIA GDP IN BILLION DOLLAR ................................................................................. 6

4. DISCUSSION: ............................................................................................................... 7

 ASIAN FINANCIAL CRISIS EFFECTED ON MALAYSIA ECONOMY IN 1998 ..................................... 7

 GLOBAL FINANCIAL CRISIS EFFECTED ON MALAYSIA ECONOMY IN 2009 ................................. 10

5. CONCLUSION & RECOMMENDATION: ....................................................................... 13

6. REFERENCE ............................................................................................................... 14

Page | i
 Introduction
Malaysia:

Malaysia is a multi-ethnic and multi-religious country in Southeast Asia and one of the
wealthiest and most developed countries, outranked in GNP only by Singapore and oil-rich
Brunei. The Federation of Malaya became an independent country on 31 August 1957.

Malaysia
Capital Kuala Lumpur
Official language Malay
Government Federal parliamentary elective constitutional
monarchy
Area 330,803 km2

Population 32,772,100
Currency Ringgit

 Economic Factor:
Economic factors that drive international business more effective include the factor are
related to the cost of production, market demand, supply of resources and market
competitor. The economy of Malaysia is the third largest in Southeast Asia, after Indonesia
and Thailand, and is the 35th largest economy in the world. Labor productivity in Malaysia is
significantly higher than in neighboring Thailand, Indonesia, Philippines or Vietnam due to a
high density of knowledge-based industries and adoption of cutting edge technology for
manufacturing and digital economy. According to the Global Competitiveness Report 2018,
the Malaysian economy is the 25th most competitive country in the world in the period of
2018–19.

Despite government policies to increase income per capita in order to hasten the progress
towards high income country by 2020, Malaysia's growth in wages has been very slow, lagging
behind the OECD standard. Academic research by the IMF and World Bank have repeatedly
called for structural reform and endogenous innovation to move the country up the value

Page | 1
chain of manufacturing into allowing Malaysia to escape the current middle income trap. Due
to a heavy reliance on oil exports for central government revenue, the currency fluctuations
have been very volatile, noticeably during the supply glut and oil price collapse in 2015.
However the government stepped up measures to increase revenue by introducing the Sales
and Service Tax (SST) at 6% rate to reduce deficits and meet federal debt obligations.

 Cultural Factor
Malaysia is a multi-cultural society. The main ethnic groups are the native Malays as well as
large populations of Chinese, and Indians. When visiting the country it is clear that the
ethnicities retain their religions, customs and way of life. The most important festivals of each
group are public holidays.
Although growing up, children are educated in the same schools and will eventually work in
the same offices, few marry outside their own ethnicity. Families tend to socialize within their
own ethnic group – all part of retaining their individual traditions and lifestyles. Despite the
ethnic differences there are commonalities culturally speaking.
 Political Factors:
Politics of Malaysia takes location in the framework of a federal consultant democratic
constitutional monarchy, in which the Yang di-Pertuan Agong is head of kingdom and the
Prime Minister of Malaysia is the head of government. Executive strength is exercised with
the aid of the federal government and the 13nation governments.

Page | 2
Business Cycle:

The business cycle, also recognized as the monetary cycle or trade cycle, is the downward and
upward progress of gross domestic product around its long-term growth trend.

We have used real gross domestic product (GDP) as a measure of the business cycle. We
ultimately decided on real GDP as it provides a better approximation of the real economic
setting in Malaysia; real GDP provides the best representation that covers a broad range of
economic activity and adequately reflects each of the real economic sectors in the country.

Page | 3
 Methodology
Methodology is the systematic, theoretical analysis of the techniques applied to a discipline
of study. It contains the theoretical analysis of the physique of strategies and ideas related
with a department of understanding.

There are unique kinds of methodology to accomplish a report. Among them we have accrued
our all indispensable information via Secondary data. Secondary facts refer to gather statistics
from studies, surveys, or experiments that have been run with the aid of other humans or for
different search purposes. Typically, we commence this document via working with secondary
data. This lets in our time to formulate questions and attain an appreciation of the issues
being distributed with earlier than the more pricey and time-consuming operation of
amassing major data.
Secondary Data Collection steps for our report:
 Identifying the situation place and the place to gather the information;
 Gathering current data
 Comparing information from one of a kind sources and
 Analyzing the data.

We have collected secondary data from:

 Numerous published articles on Malaysia economic

 Various Malaysian published journals
 Different books references
 World Bank's data
 Website browsing and so on.

Page | 4
 DATA

Malaysia GDP Growth Rate

Source: World Bank

Page | 5
Malaysia GDP in Billion Dollar

Source: World Bank

Page | 6
 Discussion:
The economy of Malaysia is the third largest in Southeast Asia, after Indonesia and Thailand,
and it is the 35th largest economy in the world. As one of three countries that control
the Strait of Malacca, international trade plays a very significant role in Malaysia's
economy. At one time, it was the largest producer of tin, rubber and palm oil in the
world. Manufacturing has a large influence in the country's economy, accounting for over 40%
of the GDP. In 1991, former Prime Minister of Malaysia, Mahathir bin Mohammad outlined
his ideal, Vision 2020 in which Malaysia would become a self-sufficient industrialized nation
by 2020.

Asian Financial Crisis effected on Malaysia economy in 1998

The year 1997 saw drastic changes in Malaysia because of Asian financial crisis. The Malaysian
ringgit was an internationalized currency, which was freely traded around the world. Just
before the crisis, the Ringgit was traded RM2.50 at the dollar. Due to speculative activities,
the Ringgit fell, foreign direct funding fell at an alarming charge and, as capital flowed out of
the country.

In January 1998, the government introduced a peg Ringgit 3.8 to the US dollar and
implemented a tight market control policy .The market price of Ringgit at that time lost 50%
of its value, which fell from RM 2.5 to RM 4.57 per US $1. The stock market lost 50% of its
capital, and the Kuala Lumpur Stock Exchange Composite Index dropped below 600, from
1200 before the recession (bin Ibrahim, M. (2010). Impact of the global crisis on Malaysia's
financial system. Bank of Israel Rony Hizkiyahu, 267).

For the crisis in 1998 below incident happen

 During the time ringgit depreciated so that money supply in the money market decrease.
 Interest rate is increases
 For the crisis the consumption and investment decreases.

Page | 7
Impact on money market:

Because of depreciation of ringgit, the money

supply in the money market decrease so that
the supply curve S is shifted to the left side S’.
For shifting the supply curve from S to S’, the
interest rate is increases from I to I’.

When interest rate rise, the dollar rises on the

foreign exchange market.net export decrease
and consumption and investment also
decreases.

Impact on GDP:

In economy when interest rate increase,

investment and consumption expenditure
decrease and net export decrease because
dollar rises its rate.

When interest rate increased in Malaysia in

1998, the consumption expenditure, and
investment also decreases. So that reason the
aggregate demand curve (AD) shift to the left
side from AD to AD’. When demand curve
shifted to AD’, the price level is decrease and
also real GDP decrease.

Page | 8
 Malaysia
Malaysia Consumption Malaysia Investment
In Billion US Dollars

46.42 45.35
42.51 41.83 42.98 41.04
38.71
32.91
29.99
25.2
19.25 17.71

1995 1996 1997 1998 1999 2000

Years
(Source : The GlobalEconomy.com,the world bank)

In 1997, the consumption and investment was 45.35 billion US Dollar and 42.98 billion US
Dollar accordingly.in 1998, consumption and investment are decrease which are 29.99 billion
US Dollar and 19.25 billion US Dollar accordingly due to price fall which is happened cause of
Asian financial crisis. So that reason, in 1998 Malaysia GDP rate was 7.359% which was
decrease from its previous year.

To improve real GDP from the crisis in 1998, Government Steps:

 Ringgit 500 and ringgit 1000 currency notes are made non legal tender to prevent
smuggling of ringgit to neighboring countries
 Overseas bound local travelers are only allow to take up to ringgit 1000
 Remittance of funds by residents to overseas are restricted at ringgit 10000
 Ringgit is pegged to the dollar at the rate of ringgit 3.80 to US 1 dollar to facilitate
trade in the domestic sector
 Any ringgit remains outside of Malaysia considered not legal tender. This is to prevent
speculators from borrowing the ringgit offshore to sell it in the domestic market for
dollars

Page | 9
Global Financial Crisis effected on Malaysia economy in 2009

In 2009, Malaysia had been sent into deflation because of global financial crisis. Deflation
usually happens in times of economic crisis. Consumer and investor preferred to keep money
reserves instead, less money spent. That was the reason to decrease demand even further.

In particular, the plump oil, rubber, and oil and natural gas sectors were more damaged due
to the impact of the global financial crisis. With commodity prices, Malaysian exports were
equally affected by a decline in global demand. Economic growth slowed to -6.2% in the first
quarter of 2009.

Impact on price level:

Due to Global crisis, there was deflation in Malaysia economy so that reason the consumption
and investment was decrease during the years.

In 2008 it was 103.19 billion U.S. dollars but in 2009 it fall to 98.79 billion U.S. dollars in
Malaysia due to global crisis.

It is also seen that in 2009 the investment also decrease which is 36.07 billion US dollar and
in 2008, it was 49.53 billion U.S. dollars. It is also indicate that there is an effect of global crisis
on investment also. China is Malaysia’s biggest trading partner. Source

Malaysia
Malaysia Consumption Malaysia Investment Malaysia Export
In Billion US Dollars

254.02
229.66 221.69
205.49
184.9
142.92
122.7
103.19 98.79
87.39
59.64 69.09
45.31 49.53 36.07

2007 2008 2009 2010 2011

Years
(Source : The GlobalEconomy.com,the world bank)

Page | 10
The effect of the US-China trade war, Malaysia got less export orders so that reason in 2009
the export decrease. In 2008, the export was 229.66 billion US Dollar and in 2009 the export
was 184.9 Billion US Dollar.

Since the consumer spending, investment and export fall, the price level also fall. So that the
Aggregate demand also decreases.

Impact on Unemployment rate:

In a country, inflation and unemployment have a stable and inverse relationship. (Concept of
Phillips curve developed by A. W. Phillips) which means that when inflation rate is decrease
in a country the unemployment rate will increase and when the inflation rate increase the
unemployment rate will decrease. Sticky wage and less demand of consumption is
responsible for increasing unemployment rate during deflation time.

Malaysia
Malaysia Inflation Rate Malaysia Unemployment Rate
In Percent(%)

5.4

3.69
3.23 3.34 3.25 3.2 3.05
2
0.6 1.6

2007 2008 2009 2010 2011

Years
(Source : The GlobalEconomy.com,the world bank)

In 2009, Malaysia inflation rate was decrease from previous year. The inflation rate was is
0.6% in 2009 and in 2008 the rate was 5.4%. On the other hand the unemployment rate was
increase in 2009 which was 3.69% and the previous year it was 3.34%.

When unemployment rate is increase the real GDP decrease. 1 percent decrease in GDP has
been associated with a slightly less than 2-percentage-point increase in the unemployment
rate (Okun’s law).

Page | 11
Impact on GDP:
When price level decrease the aggregate demand
shift to left side and real GDP decrease.

In 2009, because of global crisis and deflation the

aggregate demand shift and also the
unemployment rate increase which causes
Malaysia real GDP decrease.in 2009 the real GDP
of Malaysia was -1.514%

To improve real GDP from the crisis in 2009 Government Steps:

 To fight slowing growth and rising unemployment, Malaysia injected US$16 billion into
its economy.
 By the end of 2009, thanks to substantial financial packages and new government to
figure out growth to 5.9%, which was helped by the government decision to cut fuel
subsidies and a rise in domestic demand.

Page | 12
 Conclusion & Recommendation:

We have already seen Malaysia's last 20 years economic conditions. In below there are some
recommendations about how the government can smooth out the fluctuations in the
business cycle and plan to expand the potential output in the long run.

 The government can play an active role in promoting a few specific industries which
are the carriers of rapid technological progress, called knowledge-intensive industries
or sunrise industries. By this industry the government can increase net export which
will help to maintain money supply smooth and improve Output of the country.
 By buying or selling government securities (usually bonds), the central bank of
Malaysia can influence the money supply and interest rates stable position.
 Malaysia government can to obtain fiscal policy to increase output by affecting
aggregate demand and which also help to manage financial stability. In a recession
period, the government can run an expansionary fiscal policy, to support to fix GDP
and to put unemployed workers back to work.

The world financial system is becoming more unstable, Malaysia government must research
from this lesson, and central banks pay extra attention to asset inflation and are willing to
undertake for decrease comparable crises in the future.

Page | 13
 Reference

 B. S., & K. G. (n.d.). The Macro Economy Today (The Mcgraw-Hill Series in
Economics) (11th ed.).
 bin Ibrahim, M. (2010). Impact of the global crisis on Malaysia's financial system. Bank
of Israel Rony Hizkiyahu, 267
 The Star Online. (2019, february 22). The Star Online. Retrieved from Malaysia hits
deflation for first time since 2009 global crisis:
https://www.thestar.com.my/news/nation/2019/02/22/malaysia-hits-deflation-for-
first-time-since-2009-global-crisis

 ASEAN Today. (2013, March 21). Explaining Malaysia’s deflation since the 2009 crisis.
Retrieved from ASEAN Today: https://www.aseantoday.com/2019/03/explaining-
malaysias-deflation-since-the-2009-crisis/

 Gul, F. A. (2006). Auditors' response to political connections and cronyism in

Malaysia. Journal of Accounting Research, 44(5), 931-96

 investopedia. (2019, may 1). Phillips Curve. Retrieved from investopedia:

https://www.investopedia.com/terms/p/phillipscurve.asp

 investopedia. (2019, may 1). Okun's Law: Economic Growth And Unemployment.
Retrieved from investopedia:
https://www.investopedia.com/terms/p/phillipscurve.asp

 2. Saheri, S., Mir, M. A., Basri, N. E. A., Mahmood, N. Z., & Begum, R. A. (2012). Life
cycle assessment for solid waste disposal options in Malaysia. Polish Journal of
Environmental Studies, 21(5), 1377-1382.
 Ahmad, W., & Radzi, R. M. (2011). Sustainability of sukuk and conventional bond
during financial crisis: Malaysia’s capital market. Global Economy and Finance
Journal, 4(2), 33-45.
 Khoon, G. S., & Lim (Mah-Hui.). (2010). The impact of the global financial crisis: The
case of Malaysia. Third World network (TWN).
 Lean, H. H., & Smyth, R. (2013). Regional house prices and the ripple effect in
Malaysia. Urban Studies, 50(5), 895-922.

Page | 14
 Said, K. E. (2013). The Asian Financial Crisis 1997-1998 and Malaysian Response: An
Analytical Approach . 631

 H, M. .. (n.d.). Economic Crisis and its Social Impacts. Lessons from the 1997 Asian
Economic Crisis, pp. 92-95.

Page | 15