00:08Malaysia's economy ended 2025 stronger than expected with growth hitting 6.3% in the fourth
00:15quarter while full-year momentum remained resilient. But this year in 2026, the growth is expected to
00:22moderate around 4.4% amid rising global uncertainties from geopolitical tensions
00:28to shifting trade dynamics. So at the same time, we see that inflation has stayed relatively contained
00:34at around 1.6% and Malaysia has maintained its fiscal deficit at 3.8% of GDP. So we
00:44want to know
00:45on how resilient is Malaysia in this environment and more importantly, is growth being felt across
00:51all segments of society. So right now we want to unpack this issue. We speak to the Sigan,
00:57Disha Mugum, the economist from the World Bank for Malaysia. Good morning. How are you?
01:01Thank you. Thank you. Thank you for having me.
01:03And thank you for taking time to speak with us. It's such a pleasure. And to start off,
01:08perhaps we want to take back a look on how are we doing last year? Just to ground a view
01:16as that's watching right now because Malaysia recorded strong growth last year as reported
01:20by World Bank despite a volatile global backdrop. So how would you characterize Malaysia's overall
01:27economic performance last year in this context? Yeah, the 2025 GDP growth was better than we expected.
01:35Nothing brings us more joy than to see that our own forecast and expectation is beaten by the actual
01:44economic performance. So the economy is doing pretty well above our expectations for 2025 and that is mainly
01:55anchored by strong domestic demand. So this is private consumption that is still robust in the economy.
02:04We still see investments, both public and private investments, still ongoing. And we anticipate this support
02:15from domestic demand to continue in 2026 as well. With that positive number and figure, if we want to compare
02:24with whatever happening right now with the geopolitical tensions, the Iran conflict, if we want to differentiate
02:32the geopolitical tensions with the price crisis, the global financial crisis, the COVID-19 that happened
02:38in around 2020, how different is the nature of this shock and how is it impact on Malaysia likely
02:46to be felt differently this time? Yeah. I totally understand the anxiety surrounding what the economic outlook
02:54would look like. But at the World Bank, we are forecasting the 2026 growth to be 4.4. So we
03:03are not expecting the growth
03:06of to enter into a crisis mode per se, not like what we saw during COVID. And it's good to
03:14remind ourselves
03:15where we are compared to what we saw in 2020. For example, we are facing this situation at the backdrop
03:27of a better
03:28economic growth. For example, if we just look at the numbers, growth in 2019, pre-COVID was 4.4. Now
03:38we are entering
03:39into 2026 with growth being 5.2. And also, if we look at GDP per capita, a proxy of income,
03:48it's also better today.
03:50Household income is also growing strongly as well as unemployment. Unemployment is quite low at 2.9%. That is even
04:03before better than before COVID. So we are entering into 2026 with relative strength, not in all areas per se.
04:18Inflation is slightly higher than before COVID. Fiscal deficit is slightly wider. But we are entering
04:292026 with a better economic environment.
04:34What could be the urgent priorities for Malaysia to actually sustain the growth in between 4% to 5%?
04:43That's a very good question. I think you do have volatilities that are induced by, for example,
04:54this conflict or tariffs. What's important for the economy is to continue its focus on structural reforms.
05:06A case in point that I can make is, for example, Booty 95 program. Without the reform, the subsidy expenditure
05:17would have been even higher now compared to before because we would still be paying for non-citizen.
05:25We would still be paying for commercial usage. And the subsidy bill that would be borne by the government
05:33would be much higher. So this is a case in point where how structural, doing structural reforms
05:40really safeguards the economy from volatility and crisis that are being induced either domestically or externally.
05:49We have three factors. We have the current Iran-Israel conflict and we do have Asteris and the third is
05:58China redirection.
05:59So which of these three could be or possess the biggest downside risk to Malaysia's growth outlook?
06:06It's tough to say which one because we don't quantify exactly which factors have which type of magnitude
06:18that affects the economy. And one of the reasons is because things are changing on a daily basis.
06:27Correct.
06:28Today is different from yesterday and next week you could have a different set of assumptions.
06:33But as you said, these three factors are the major ones that are driving the economy.
06:41Like I mentioned earlier, inflation is currently around 1.6%. But with the ongoing geopolitical tensions,
06:48especially affecting global energy state, how exposed is Malaysia to a potential spike in inflation
06:54and what could this mean for vulnerable households given poverty that still stands at about 5.1%?
07:01So unlike in other countries, in most of the other countries, we still have subsidy for fuel components
07:10that are used by most of the households. So if we just take Ron95 for example, so the price of
07:17subsidised fuel
07:19still remains the same. But the price of unsubsidised, the market price of Ron95 has fluctuated.
07:26Now that has helped to keep the inflation a little bit more anchored. But there is still cost to that.
07:36And the cost is borne by the government. But it isn't the only way that inflation can increase.
07:45So fuel isn't the only way that inflation can increase in Malaysia. It is yet to remain seen how other
07:54products,
07:54for example, like fertilisers, the price increase that we have seen in fertilisers, how are they going to impact the
08:03prices in Malaysia?
08:04It still remains to be seen. But it's just a point that I would like to make as fuel isn't
08:10the only way that is going to drive prices.
08:15Given the ongoing spending pressures, especially on energy, how much policy space does Malaysia still have to respond to external
08:24shocks moving forward?
08:26Yeah. I can't exactly say how much there is, but we are at a narrower space compared to before.
08:37And if we just look at the debt numbers, federal government debt to GDP has been on the rise. Last
08:47year it was 65.3%.
08:50And under the Fiscal Responsibility Act, we should see the debt ratios to decline to 60% by 2030.
09:00So in that sense, if you look at it just from a Fiscal Responsibility Act point of view, there isn't
09:08much space or room or time for the government to do this.
09:15And there are even projections that show that it could continue going up instead of going down.
09:23So fiscal discipline is something that is important if we are to meet the future deficit and also debt targets.
09:34But one point that I would like to emphasise is, again, we are not in a crisis mode in a
09:41technical sense.
09:42So we don't foresee any need for stimulus per se. But that still doesn't take away the point that we
09:53do have narrower fiscal space than compared to, say, five years ago.
09:58Indeed, it's such a tough time now. But clearly the challenge ahead is not just about maintaining growth, but ensuring
10:05that it remains resilient and also inclusive in an increasing uncertainty global landscape.
10:10So I would like to say thank you so much again to De Sigeen Shamugam, the Economist from the World
10:15Bank for Malaysia.
10:16Again, for your insight and time taken to speak with me.
10:19And you can find this whole discussion on all of our social media platforms, and that includes astroone.com.
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