OECD urges M'sia to boost competitiveness amid global uncertainty
KUALA LUMPUR : The Organisation for Economic Cooperation and Development (OECD) has called on Malaysia to take further steps to improve its economic competitiveness and resilience in light of global uncertainties.
Speaking at a virtual conference on the OECD Economic Outlook today, its Southeast Asia division head, Jens Arnold, said Malaysia should pursue additional reforms to strengthen its economy.
Recent reports suggest the US is proposing a 'revenge tax' targeting what it sees as unfair tax practices. The measure would affect passive income from US investments and profits of foreign-owned entities, including governments, companies and foundations.
Arnold said Malaysia could attract more investment by easing remaining restrictions on foreign direct investment (FDI) and promoting fair competition between state-owned enterprises, GLCs and private firms.
'Malaysia has some room for monetary support, as inflation remains low and well contained. But, more importantly, structural reforms are needed to strengthen competitiveness,' he said.
He stressed the need to address labour market challenges, such as skills mismatches, through better education and workforce training.
'These steps are crucial to making the economy more resilient to future shocks,' he said.
OECD chief economist Alvaro Pereira projected Malaysia's economy to grow by 3.8% in 2025, down from stronger export performance in 2024, as global trade slows.
He said inflation, which stood at 1.8% in 2024, was expected to rise to 2.2% in 2025 and 2.7% in 2026.
'Malaysia's labour market is strong, with unemployment at a 10-year low and rising labour force participation. This should continue to support private consumption,' he said.
He noted that monetary policy remained broadly neutral and appropriate, but there was room to ease if growth slowed. However, he warned that authorities must watch for potential inflationary pressures from a tight labour market and rising wages.
Southeast Asian outlook remains uncertain
Arnold said that in 2024, Indonesia, Malaysia, the Philippines, Thailand and Vietnam grew at a weighted average of 5%, comparable to or higher than growth in the OECD area and China.
However, he warned that trade and investment could weaken this year because of tariffs and rising policy uncertainty, with early signs of slowing activity seen in purchasing manager indices.
He said boosting competition could improve productivity, especially by reducing regulatory barriers for new and foreign businesses.
'These five Southeast Asian economies remain more restrictive than many others. Lowering barriers to FDI and services would help improve the competitiveness of local industries,' he said.
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