Malaysia Economic Update Report

Malaysia’s trade performance in the second quarter of 2024 continued to demonstrate robust expansion, underscoring the country’s resilience in navigating global economic challenges. Total trade for Q2 2024 reached RM705.57 billion, representing a 2.2% increase from the previous quarter (Q1 2024: RM690.53 billion) and a notable 10% growth compared to the same period last year (Q2 2023: RM641.42 billion). The country sustained a healthy trade surplus, amounting to RM32 billion in Q2 2024.

Exports during this period reached RM368.78 billion, reflecting a 1.8% increase quarter-on-quarter and a 5.8% rise year-on-year. Malaysia’s primary export products included Electrical and Electronic Products, Petroleum Products, and Palm Oil and Palm Oil-Based Agricultural Products. Noteworthy year-on-year growth was observed in the export of Machinery, Equipment, and Parts, which increased by 22.8%, Palm Oil-Based Manufactured Products, which rose by 17.1%, and Optical and Scientific Equipment, which grew by 13.8%. The top three export markets for Malaysia during this quarter were Singapore, China, and the United States.

On the import front, Malaysia recorded RM336.79 billion in Q2 2024, marking a substantial year-on-year growth of 15% and a quarter-on-quarter increase of 2.6%. Key import products included Electrical and Electronic Products, Petroleum Products, and Machinery, Equipment, and Parts, with the latter experiencing the highest year-on-year growth at 36.5%. The leading sources of Malaysia’s imports during this period were China, Singapore, and the United States. This surge is largely driven by Malaysia’s accelerated push towards advanced manufacturing and infrastructure development, requiring sophisticated machinery and technology. Additionally, the country’s commitment to enhancing its technological capabilities, particularly in sectors like electronics and automotive manufacturing, has fueled the demand for cutting-edge machinery and equipment. These imports are crucial for supporting Malaysia’s broader economic strategy to move up the value chain and strengthen its position in the global market.

In the first half of 2024, trade with Free Trade Agreement (FTA) partners expanded by 5.7% to RM922.14 billion. Exports rose by 1.4% to RM500.77 billion, while imports saw a significant increase of 11.3%, reaching RM421.37 billion compared to the corresponding period in 2023. Overall, imports increased by 13.8% year-on-year, totaling RM664.99 billion. Notably, imports of intermediate goods increased by 21.2% to RM361.73 billion, capital goods surged by 35% to RM76.95 billion, and consumption goods rose by 15.2% to RM57.32 billion.

Detailed analysis of trade growth in the first half of 2024 with Malaysia’s main trading partners is as follows:

• ASEAN: Trade with ASEAN grew by 7% to RM379.96 billion compared to the same period in 2023. Exports to the region increased by 4.3% to RM219.9 billion, driven by strong demand for petroleum products, machinery, equipment, and parts, as well as crude petroleum. Imports from ASEAN rose by 10.9% to RM160.06 billion.
• China: Trade with China expanded by 8.9% to RM234.09 billion in the first half of 2024 compared to the corresponding period in 2023. Exports to China fell slightly by 1.1% to RM90.7 billion due to lower exports of Electrical and Electronic Products, but this was offset by higher exports of paper and pulp products, LNG, and metal manufactures. Imports from China increased by 16.5% to RM143.39 billion.
• The US: Trade with the United States grew by 18.8% to RM140.53 billion compared to the same period in 2023. Exports recorded double-digit growth of 12.1% to RM86.91 billion, driven by larger exports of Electrical and Electronic Products, machinery, equipment, and parts, as well as optical and scientific equipment. Imports from the United States surged by 31.6% to RM53.62 billion.
• The EU: Trade with the European Union increased by 4.1% to RM106.05 billion compared to the corresponding period in 2023. Exports edged up by 0.1% to RM56.08 billion, supported by higher exports of palm oil and palm oil-based products, processed food, and Electrical and Electronic Products. Imports from the EU rose by 9% to RM49.97 billion.
• Taiwan: Trade with Taiwan saw remarkable growth, expanding by 30.7% to RM82.88 billion compared to the first six months of 2023. Exports to Taiwan grew significantly by 44.3% to RM30.85 billion, supported by higher exports of Electrical and Electronic Products, as well as optical and scientific equipment. Imports from Taiwan increased by 23.8% to RM52.03 billion. The sharp increase in Malaysia’s trade with Taiwan stems from growing economic ties and mutual demand in the high-tech and semiconductor industries. Malaysia’s exports bolster Taiwan’s tech sector, while imports meet Malaysia’s demand for advanced machinery and components.

Malaysia is rapidly establishing itself as a significant player in the global semiconductor industry, propelled by strategic initiatives such as the opening of Infineon’s new semiconductor fabrication facility in Kulim and the government’s ambitious National Semiconductor Strategy (NSS). The first phase of the NSS targets RM500 billion in investments, strongly emphasizing domestic direct investments (DDI) aimed at advancing integrated circuit design, advanced packaging, and manufacturing equipment. In the subsequent phase, the strategy seeks to establish at least 10 Malaysian companies specializing in advanced packaging with revenues between RM1 billion and RM4.7 billion, alongside the development of at least 100 semiconductor-related companies with revenues approaching RM1 billion. These efforts are positioning Malaysia as a rising hub in chip manufacturing, poised to enhance its role in the global semiconductor supply chain.

The inauguration of Infineon’s facility in Kulim, which is anticipated to become the world’s largest silicon carbide factory, marks a pivotal moment in Malaysia’s semiconductor sector. This development underscores the country’s growing appeal to major semiconductor companies seeking to diversify their operations amid shifting global geopolitical dynamics. Malaysia’s stable political environment, clear industrial policies, and commitment to energy transition have all played crucial roles in bolstering investor confidence.

In a significant move back in December 2021, American semiconductor giant Intel announced an investment exceeding $7 billion to establish a chip packaging and testing facility in Malaysia. Intel’s presence in Malaysia dates back to 1972 when it made its first overseas investment of $1.6 million in an assembly site. Over the years, Intel has expanded its footprint in Malaysia by adding a full test facility and a development and design center.

Similarly, in September last year, GlobalFoundries launched a hub in Penang to support its global manufacturing network, complementing its existing facilities in the U.S., Europe, and Singapore. These investments highlight Malaysia’s growing importance in the global semiconductor landscape.

Prime Minister Anwar Ibrahim has emphasized the critical role these investments play in strengthening Malaysia’s semiconductor ecosystem. He noted that the government’s proactive approach, including policy clarity and financial incentives, has been instrumental in attracting such significant investments. Infineon’s commitment is seen as a strong endorsement of Malaysia’s capabilities in semiconductor manufacturing.

To further establish itself as a semiconductor hub, Malaysia has introduced the National Semiconductor Strategy (NSS), a comprehensive plan aimed at fostering high-value developments in the sector. With an ambitious target of RM500 billion in investments, the NSS seeks to transition Malaysia from its traditional role in outsourced semiconductor assembly and testing to more advanced sectors like chip design, wafer fabrication, and advanced packaging.

The Malaysian government has earmarked RM25 billion in fiscal support to drive this transformation, focusing on building a robust ecosystem that supports high-value manufacturing. This includes initiatives to create at least 10 local companies specializing in semiconductor design and packaging and efforts to train and upskill 60,000 Malaysians to meet the growing demand for skilled engineers in the industry.

Although Malaysia is currently the world’s sixth-largest semiconductor exporter, the industry has traditionally been concentrated on the back-end of the supply chain. The NSS aims to shift this focus by promoting innovation and high-value activities within the semiconductor sector, creating higher-income jobs and enhancing Malaysia’s global competitiveness.

As Malaysia continues to attract significant investments from global semiconductor giants like Intel, GlobalFoundries, and Infineon, its vision of becoming a leading chip manufacturing hub in Southeast Asia is steadily advancing. However, the long-term success of this initiative will hinge on the government’s ability to maintain investor confidence and cultivate a skilled workforce capable of sustaining industry growth.

This report was compiled with contributions from the team of business experts in our Malaysia office.

ARC Consulting, a division of ARC Group, is an advisory firm specialised in supporting western companies operating in Asia. Our mission is to bridge between the business ecosystems of Asia and those in Europe and the US. Our services cover market entry and expansion, production and sourcing, cross-border M&A as well as ESG and operational improvement and compliance.

If you are interested in exploring how we can support your business in Malaysia, reach out through our contact page, or leave your email below for a representative to contact you directly: