Malaysia’s GDP Growth Masks a Dark Truth


The economy is growing, yes, but fuelled by rising household debts rather than productivity.

The World Bank and the International Monetary Fund (IMF) have increased their projection of Malaysia’s GDP growth this year to 5.2% and 4.8% respectively. This is due to the unexpected GDP surge of 5.7% in the first half of 2017.1

Government officials saw this as proof that the economy is going strong. Prime Minister cum Finance Minister Datuk Seri Najib Razak credited the growth to the federal government’s massive projects, such as the construction of the MRT, the East Coast Rail Link and the Pan Borneo Highway.2

Milestone of Malaysia Federal Route 22 at Telupid in Sabah, part of the Pan Borneo Highway.

Under normal circumstances, GDP growth signals economic progress and is indicative of the increase of wealth. However, that is not the case here, and for two reasons: first, the average inflation rate for the first six months in 2017 was 4.1%. Compared to the same period in 2016 (2.6%), this was an increase of 58%. The estimated rate will be between 3-4% for 2017, which is high compared to our neighbours: Thailand (1.4%), Singapore (1.1%) and Brunei (-0.1%).2 Things got more expensive in 2017 at a faster rate than was the case the year before.

Second, on January 13, 2014, the exchange rate for US$1 was RM3.26. On the same date in 2017, it was RM4.46. The value of our currency, in relation to the dollar, was reduced by 37%.

Following that, the trajectory of our Gross National Income per capita, which reflects the average income per Malaysian, was badly affected.

The Economic Planning Unit’s The Malaysian Economy in Figures 2017 report states that the Malaysian average income of US$10,644 in 2014 was reduced to US$9,242 in 2015, then to US$9,102 in 2016, and US$8,906 last year.4

That means, if without salary increment, we are on average paid 16% lesser now for the same amount of work we did three years ago.

Salary increment must be no lesser than 16% over four years to at least be stagnant. If inflation is accounted for, we need more than that.

These two reasons resulted in the reduction of spending ability. A recent poll corresponds to this observation: more than half of those surveyed (56%) remarked that their financial situation had worsened, and 86% deemed that the average wage was low.5

MRT train in KL.

Indeed, the massive construction projects contributed to the GDP. Nonetheless, the public sector takes up only 21.5% of the GDP. Its 2.9% growth in the first half of 2017 was dwarved by 6.9% increase in private consumption, which is 53.2% of the GDP – six times more than the public sector.6

In other words, the increase in GDP was largely due to the increase in private consumption. The federal government’s projects contributed much less to GDP growth compared to private consumption.

How then is it possible for the GDP, which is driven by private consumption, to grow by 5.7% when our spending ability has reduced?

The answer is debts and loans.

Unsustainable GDP

Many Malaysians who can no longer afford to spend like they did in the past continue to do so by taking on debts and loans. Six indicators between the first half of 2016 and 2017 support this observation:

1) The total spending via credit card increased by RM1.6bil. More spending was done through debt.

2) Late payment of outstanding credit card bills (more than three months but less than six months) increased by RM124.59mil. More people are delaying their card payment – a sign that they are struggling to repay their credit card debts.

3) The total loans disbursed by banks to all sectors increased by RM23.7bil. The economy was stimulated through large amounts of borrowed money.

4) The total loans disbursed by banks for household or domestic consumption alone rose by RM4.8bil.

5) The amount of loans that cannot be repaid in full or in part increased by RM9.2bil, from RM141.7bil to RM151bil – a sign that more people across all sectors are struggling to service their loans.

6) The amount of household loans that cannot be repaid in full or in part has risen by RM3.1bil – from RM52.8bil to RM56bil.

Suria KLCC shopping mall. The increase in GDP was largely due to the increase in private consumption.

These six indicators show that a large part of GDP growth was due not to existing means, but to borrowed money. In other words, the 5.7% increase in GDP, given the drastic depreciation of the ringgit, is not a sign that the economy is progressing; instead, it is the result of Malaysians spending beyond their means through debts and loans.

A debt-driven GDP growth is unsustainable. It is a bubble waiting to burst, similar to the 2008 subprime crisis when large numbers of people purchased properties that they could not afford. The US GDP growth in the three years prior was 6.52%, 5.12% and 4.4%. Then came 2008, and the country found itself in the worst financial meltdown since the 1929 Great Depression.

With the implemented measures by Bank Negara, it is unlikely that Malaysia will face such an economic shock. Nonetheless, moderating credit can only do so much. Without a stable currency, our economy will die a slow death.


1 2017/10/05/world-bank-raises-forecast.
2 nation/2017/08/18/najib-malaysias-economicprogress- defies-naysayers.
3 pdf
4 pdf
5 nation/2017/09/20/cost-of-living-single-biggestconcern- survey-shows.
6 Q2_en.pdf
7 xls/1.30.xls
8 xls/1.30.xls xls/1.15.xls
10 xls/1.15.xls
11 xls/1.23.xls
12 xls/1.23.xls

Joshua Woo Sze Zeng is councillor with the Seberang Perai Municipal Council.

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