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
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.
