Like most other Southeast Asian countries, Malaysia’s economy and exchange traded fund (ETF) was hit hard after a slump in overseas exports. Turning its focus to domestic consumption may be just the ticket to success.

Senior Advisor to the Asian Institute of Finance, Professor Datuk Dr Sudin Haron, stated that consumption, investment, government spending and net export drive an economy and, to that end, the government will need to unveil policies that increase consumption and investment,  report Tengku Noor Shamsiah Tengku Abdullah for Bernama. [Malaysia: On the Mend or Trouble Ahead?]

Haron argues that “by imposing some measures that control the rate of inflation, it could induce people to spend more. Uncertainty over the future, makes them tend to save and reduce spending.”

He also notes that stimulus packages increased growth in sectors like construction and services, and the government should implement more stimulus projects to generate long-term growth for both domestic and export purposes.

In the wake of the financial crisis, many an exporting economy has looked inward in order to make up the difference in lost global demand. Will Malaysia have the impetus to follow through on the suggestions?

Either way, there are things to find appealing about Malaysia’s economy:

  • Malaysia’s potential growth in the next three years is projected to be around 4.25% according to the International Monetary Fund (IMF). Alias estimates the economy may expand between 4.3% and 4.5%.
  • Central bank Governor Zeti Akhtar Aziz raised interest rates for the first time in almost four years on March 4, report Stephanie Phang and Michael Munoz for Reuters. Further interest rate hikes may occur to prevent asset bubbles and discourage risky investments. Inflation will remain “modest” this year, says Aziz.
  • Prime Minister Najib Razak will announce new policies next week to help Malaysia become a high-income economy. The new economic model will focus on boosting productivity through research and development.
  • Razak estimates that the economy may grow as much as 6% this year, and the Trade Minister has stated that March 2 overseas sales may increase by as much as 7%, more than the previous 3.5% estimate.

For more information on Malaysia, visit our Malaysia category.

  • iShares MSCI Malaysia Index (NYSEArca: EWM)

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.