OECD urges Malaysia to boost competitiveness amid global uncertainty

New Straits Times

2 days ago

KUALA LUMPUR: The Organisation for Economic Co-operation and Development (OECD) has urged Malaysia to implement further measures to enhance its economic competitiveness and strengthen its resilience.
Speaking during a virtual conference on the OECD Economic Outlook today, the organisation's head of division for Southeast Asia, Jens Arnold, said Malaysia should consider additional reforms to bolster its resilience amid ongoing global uncertainties.
Recent media reports indicate that the United States (US) has proposed a so-called "revenge tax" — a retaliatory initiative aimed at countering what it views as unfair tax practices by other nations.
The proposed measure would apply to passive income earned from US investments and profits generated by companies operating within the country. It specifically targets foreign-owned entities, including governments, corporations, and private foundations, potentially affecting a broad spectrum of international stakeholders.
Arnold said improvements in Malaysia could include reducing the remaining restrictions on foreign direct investment (FDI) and ensuring a more level playing field between state-owned enterprises, government-linked companies, and the private sector.
"Malaysia has some scope for support on the monetary side. Inflation is low and has been very well contained, but beyond that, it is even more important to consider structural policies that can enhance the economy's competitiveness going forward," he said.
He also emphasised the importance of addressing labour market challenges, particularly skills mismatches, through increased investment in education to better equip the workforce for future disruptions.
"These are critical steps to make the economy more resilient and capable of withstanding shocks on the horizon," he added.
Meanwhile, OECD chief economist Alvaro Pereira said Malaysia's economy is projected to grow by 3.8 per cent in 2025, due to expectations of softer export performance.
He noted that although Malaysia recorded a stronger export performance in 2024, continuing global uncertainties may weigh on trade this year.
Pereira also said Malaysia's inflation was 1.8 per cent in 2024, and is expected to rise modestly to 2.2 per cent in 2025, before climbing to 2.7 per cent in 2026.
"Currently, Malaysia's labour market is remarkably strong and is expected to support private consumption going forward. Unemployment is at a 10-year low, while labour force participation continues to rise steadily," he said.
He added that the current monetary policy stance is broadly neutral and is rightly expected to remain so, though there is some room for easing should growth weaken.
However, he cautioned that monetary authorities should remain vigilant to potential price pressures, especially from a tight labour market, as well as increases in the minimum wage and civil servants' salaries.
Southeast Asia Outlook
Arnold said that in 2024, the five key Southeast Asian countries — Indonesia, Malaysia, the Philippines, Thailand, and Vietnam — grew at a weighted average of five per cent, a pace that was considerably stronger than, or on par with, growth in the OECD area (Europe, the Americas, and Asia-Pacific), as well as in China.
However, he said the OECD projects a more challenging growth environment for the region this year.
"What is clear is that tariffs and the policy uncertainty we are seeing now are likely to dent trade and investment, which will take a toll on overall growth. Some of the most recent purchasing manager indices already show early signs of slowing activity," he said.
He also highlighted that opening up markets to greater competition could significantly boost productivity.
"For instance, regulatory policies — particularly those related to licensing and administrative burdens for new entrants, including foreign players — often play a crucial role in this regard.
"The five Southeast Asian countries remain more restrictive than many other economies, so reducing barriers to FDI and services would be an effective way to improve the competitiveness of domestic producers," he added.