Latest Development

• Malaysia’s economy shrank by 3.9% in the second quarter of 2009 on a year-on-year (yoy) basis. The IMF expects the Malaysian economy to contract by 3.6% in 2009, followed by a 2.5% growth in 2010.
• Malaysia’s export decline is moderating as shown by the improving monthly figures, albeit a 30% decline was recorded in the first eight months of 2009, compared with the year-earlier period.
• Malaysia’s industrial production fell by 5.7% yoy in August, moderating from the 8.1% decline in July and representing the mildest contraction in nine months.
• Malaysia is the 17th largest export market of Hong Kong, and its 7th largest source of imports. Hong Kong's total exports to Malaysia fell by 37% yoy to US$1.5 billion in the first nine months of 2008, while its imports from Malaysia declined by 2% yoy to US$5.5 billion.

Current Economic Situation

Malaysia’s economy shrank by 3.9% in the second quarter of 2009 on a year-on-year (yoy) basis. The IMF expects the Malaysian economy to contract by 3.6% in 2009, followed by a 2.5% growth in 2010. With the plunge in merchandise exports and manufacturing activities, the services sector will become more dynamic as the government channels more resources into the services sector with a view to diversifying the sources of growth. Government spending will remain relatively strong as the government adopts various stimulus measures to support domestic demand, including a fiscal stimulus package worth M$5bn in 2010, and to fulfill spending goals outlined in the Ninth Malaysia Plan. Consumer price index fell 2% in September, recording the fourth consecutive month of deflation.

Malaysia's industrial production fell by 5.7% yoy in August, moderating from the 9.5% yoy decline in June and 8.1% decline in July, and representing the mildest contraction in nine months. Industrial production recorded four consecutive months of month-on-month gain in August. Given that the current inventory level is extremely low as a result of three consecutive years of decline since 2007, stockbuilding is expected to hasten in 2010 to enable firms to meet the expected increase in orders.

Despite a yoy decline of 30% recorded in the first eight months of 2009, Malaysia's exports dropped by 19.8% yoy in August, easing from the 22.8% contraction of July. A mild improvement in export performance is expected in 2010 as global trade recovers and oil prices rise.

Malaysia’s main exports are electronic equipment, petroleum and liquefied natural gas, wood and wood products, palm oil, rubber, textiles and chemicals. Top export destinations now include the US, Singapore, Japan, the Chinese mainland, Hong Kong and Thailand. Main imports include electronics, machinery, petroleum products, plastics, vehicles, iron and steel products and chemicals. Main import partners include Japan, the US, Singapore and the Chinese mainland.

Trade Policy

Malaysia is a member of the World Trade Organisation (WTO), and it adopts a liberal trade regime. Companies are allowed to trade freely without special restrictions.

Malaysia has abolished import tariffs on a wide range of items, including raw materials, components and machinery. Import tariffs, where applicable, are mostly imposed on an ad valorem basis. The import duty on raw materials and intermediate goods ranges between 5%-30%.

Further, as Malaysia is a member of ASEAN, the country is committed to the ASEAN Common Effective Preferential Tariffs (CEPT) scheme, under which all industrial products traded within ASEAN are subject to import duties of 0%-5% only.

Malaysia has continued to participate in various free trade arrangements with other countries. These include the Japan-Malaysia Economic Partnership Agreement, and the regional agreements under ASEAN-Republic of Korea Free Trade Agreement, and China-ASEAN Free Trade Agreement. Recently, the Malaysian-New Zealand Free Trade Agreement was signed in October 2009. Lower import duties are applied to imports originated from the trading partners under different arrangements.

Most of the imports are also subject to a 10% sales tax, which is imposed at the import and manufacturing levels. Raw materials, machinery, basic foodstuffs, basic building materials, certain agricultural implements, etc., are exempt from the sales tax. Certain non-essential foodstuffs and building materials are subject to a lower rate of 5%. But liquor and cigarettes are taxed at a higher rate.

Hong Kong’s Trade with Malaysia

Hong Kong's total exports to Malaysia decreased by 37% yoy to US$1.5 billion in the first eight months of 2009, after an 8% increase to US$3.5 billion in 2008. Major export items in the first eight months of 2009 included telecommunications equipment and parts (23% of the total), semiconductors and electronic valves & tubes (14%), electrical apparatus for electrical circuits (11%), parts and accessories of office machines/computers (8%) and electric power machinery and parts (4%).

On the other hand, Hong Kong's imports from Malaysia fell by 2% yoy to US$5.5 billion in the first eight months of 2009, after a 5% increase to US$8.5 billion in 2008. Major imports in the first eight months of 2009 included semiconductors and electronic valves & tubes (52% of the total), telecommunications equipment and parts (13%), parts & accessories of office machines/computers (7%), and computers (6%).