The Global Economy is Shifting — Where Does Malaysia Stand?

Murray Hunter


The Global Economy is Shifting — Where Does Malaysia Stand?

Samirul Ariff Othman
Apr 22, 2025





When we talk about the economy, most people instinctively think about their jobs, prices at the grocery store, or maybe whether their kids will have better opportunities. But economists see the world a little differently. They often zoom out, looking at the big picture through national data — like GDP. The Gross Domestic Product, or GDP, is not a measure of happiness or household welfare; it’s a measure of economic activity. It tells us how much stuff we’re making and selling — to each other and to the world.

One of the most common ways economists calculate GDP is by using what’s called the expenditure method, which basically adds up what we spend. That includes Consumption (C), what households spend on goods and services; Investment (I), what businesses pour into machinery, buildings, or new ideas; Government Spending (G), like public infrastructure or salaries; and finally, Net Exports (X - M), or the value of what we export minus what we import.

But here’s the kicker — not all spending is created equal. In fact, not all of it stays within the walls of your country. Malaysia is a textbook case of this. The Malaysian economy, worth around RM1.5 trillion, is powered by two big engines: domestic spending and global demand.

Let’s start with the first engine. In 2023, households, firms, and the government together spent around RM1.4 trillion. Sounds like a lot, right? But nearly RM900 billion of that went to buying imported goods — with food, machinery, and defense systems being some examples. In economic terms, this is what we call a leakage — money that exits the domestic economic bloodstream. The remaining RM500 billion? That’s what truly contributes to Malaysia’s domestic GDP. The real economic muscle.

Now, the second engine — and arguably the more powerful one — is global spending on Malaysian goods, or exports. In 2023, the rest of the world bought nearly RM1 trillion worth of what Malaysia produced. That’s two-thirds of the entire GDP coming from the outside world. And here’s where geopolitics crashes the party. About 40% of Malaysia’s exports go to China (18%), Singapore (12%), and the U.S. (10%). The top ten export markets make up nearly 70% of Malaysia’s export volume — and around 64% of it is concentrated in Asia.

So when Donald Trump, in his America First crusade, began slapping retaliatory tariffs on Asian economies, Malaysia inevitably felt the tremors.

Why? Because Malaysia is not a closed-loop system. It’s wired into the global grid. When the world sneezes, Malaysia catches a cold. If you’re a Malaysian working at a company that exports electronics or palm oil, and global demand drops due to tariffs or a slowdown in China, your company may freeze investment or even cut jobs. That affects household consumption. That affects growth. And what about the government? If things go south globally, does Putrajaya have the fiscal firepower to ride to the rescue? That’s tricky. Malaysia is still juggling a high fiscal deficit and ballooning public debt.

So, the bottom line is this: while we often think of economic policy as something local — budgets, taxes, fuel subsidies — Malaysia’s fate is tethered to forces well beyond its borders. Understanding GDP isn’t just about crunching numbers — it’s about recognizing that a tariff in Washington, a supply chain bottleneck in Shenzhen, or a commodities surge in the Gulf could all ripple into Malaysian living rooms.

New tariffs introduced by the U.S. - The U.S.-China Trade War is Heating Up!

This is deeply concerning — both countries are major trading partners for Malaysia — and for the world at large. In 2023, 18% of Malaysia’s exports went to China, and 10% to the United States. If the economies of these two giants slow down, it will have a ripple effect on the global economy as well Malaysia’s.

Interestingly, the bulk (54.6%) of Malaysia’s exports to the U.S. consists of electrical and electronic (E&E) products. Malaysia is the fifth-largest semiconductor supplier to the United States. And while new tariffs may rattle markets, semiconductors — deemed strategic — are often granted exemptions. Moreover, much of Malaysia’s E&E exports are high-tech. Our competitive edge lies not in being cheap, but in being sophisticated. Quality, not price, defines our strength.

According to Economist Professor Tan Sri Dr Noor Azlan Ghazali, who is also the Director of Universiti Kebangsaan Malaysia's (UKM) Malaysian Inclusive Development and Advancement Institute (MINDA), this is precisely the focus of Mission #1 under the New Industrial Master Plan 2030 (NIMP 2030) — to increase the technological complexity of Malaysia’s economy. Malaysia can no longer compete as the “cheap option.” We must compete as the smart, sophisticated, and reliable one. So where do we stand overall in terms of economic complexity? That’s a bigger discussion — but one we urgently need to have.

Prof Noor Azlan points out that what’s troubling, are the global implications of these retaliatory tariffs. If major economies retaliate with their own tariffs on U.S. imports, a chain reaction could spark a full-blown trade war.

So can Malaysia’s domestic economy act as a buffer? Not quite. Net domestic expenditure only contributes around 33% to Malaysia’s GDP. Malaysians still tend to spend heavily on imported goods — and from an economic standpoint, imports are leakages. In times of global uncertainty, household spending and business investment at home also come under pressure.

Can the government roll out a stimulus package to soften the blow? Or more importantly — can it afford to? That’s the real question. Remember that aside from high fiscal deficit and growing public debt, our federal government revenue is low, as indicated by a low Tax-to-GDP ratio.

Malaysia faces substantial risks. There’s a real possibility that this aggressive U.S. trade stance could reshape global trade systems and investment flows. The long-term consequences could be profound — demanding that Malaysia rethink, re-strategize, and reposition itself globally.

This is precisely the core mission of the newly established National Geoeconomic Command Centre (NGCC) — to monitor these developments, anticipate threats, and craft strategic responses. Because in this flat, fragile, interconnected and unforgivingly fast world, Malaysia cannot afford to be complacent.

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Economist Samirul Ariff Othman is an adjunct lecturer at Universiti Teknologi Petronas, international relations analyst and a senior consultant with Global Asia Consulting. The views in this OpEd piece are entirely his own.