Business Cycle Study

of
Malaysia
About Malaysia

Capital: Kuala Lumpur

Population: 32.77 Million

Language: Malay

Currency: Ringgit
Malaysia GDP Growth Rate
Malaysia GDP in billion US dollar
Business Cycle of Malaysia
Asian Financial Crisis effected on Malaysia economy in
1998
Malaysian ringgit was an internationalized currency, which was freely
traded around the world

Due to speculative activities & Asian Economy crisis

• Ringgit fell,
• foreign direct funding fell at an alarming charge
• capital flowed out of the country.

The GDP was fall and in 1998, GDP was -7.539%

Impact on money market

Depreciation of ringgit, the money supply

in the money market decrease
Supply curve S is shifted to the left side S’
Interest rate is increases from I to I’
Interest rate rise, the dollar rises on the
foreign exchange market, consumption
and investment also decreases
Impact on GDP
Because of increase Interest rate, in
Malaysia in 1998, the consumption
expenditure, and investment also
decreases.
The aggregate demand curve (AD)
shift to the left side from AD to AD’
Demand curve shifted to AD’, the
price level is decrease and also real
GDP decrease.
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
To improve real GDP from the crisis in 1998,
Government Steps

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
Global Financial Crisis effected on Malaysia economy
in 2009
In 2009, Malaysia had been sent into deflation
because of global financial crisis. Consumer and
investor preferred to keep money reserves
instead, less money spent. That was the reason to
decrease demand even further.
Impact on price level:
In 2008 Malaysia Consumption 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.
Impact on price level:
In 2009 the investment also decrease
which is 36.07 billion US dollar and in
2008, it was 49.53 billion U.S. dollars

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
Impact on Unemployment rate:
In 2009, Malaysian inflation rate was
decrease from previous year. The
inflation rate was 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%.
Impact on GDP
In 2009, because of deflation consumer
spending, investment and export fall and the
unemployment rate increase which causes
aggregate demand shifts left side,
price level fall and Malaysia real GDP
decrease. In 2009 the real GDP of Malaysia
was -1.51% .
 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.
 Recommendation
this 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 in position.

Malaysia government can 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 fix
GDP and to put unemployed workers back to work.
 Conclusion
The world financial system is becoming more unstable,
Malaysia government must research from this lesson,
and central bank pays extra attention to asset inflation
and are willing to undertake for decrease comparable
crises in the future.