KEY FINDINGS
Part 1: Economic Developments and Outlook
Malaysia’s economy expanded by 4.4 percent in 1H 2025, supported by resilient domestic demand, particularly household consumption and investment. Growth is projected at 4.1 percent for 2025, moderating from 5.1 percent in 2024 but slightly higher than earlier forecasts.
Consumption was buoyed by wage gains, minimum wage hikes, and civil service pay adjustments. Investment momentum strengthened, with ICT-related foreign direct investment remaining robust. Services and manufacturing were the main supply-side drivers, while mining contracted.
Exports moderated due to weaker sentiment, stronger exchange rate, and lower commodity output. However, tourism activity and demand for electrical and electronics (E&E) products remained strong, supported by AI-related investment. Import growth rose sharply to 9 percent, reflecting higher capital goods imports.
Labor force participation and employment increased, with the national unemployment rate declining to 3.0 percent. Median formal sector wages rose to RM3,000 in March 2025, with a narrowing gender wage gap.
Hardcore poverty has nearly been eradicated, but 490,000 households (about 6.2 percent) remain below the national poverty line, with sharp rural-urban and regional disparities, especially in Sabah.
Headline inflation moderated to 1.2 percent in June 2025, driven by lower global commodity prices, improved food supply chains alongside a decline in mobile communication costs.
Downside risks dominate—persistent global trade tensions, U.S. tariffs on semiconductors, and domestic inflationary pressures from reforms could weigh on growth.
Malaysia’s Gini index remains high at 39, and income mobility is limited, with many low-income households struggling to move up.
Malaysia is on track to achieve high-income status, and sustaining this progress will require policies that reduce inequality, enhance income mobility, and ensure that prosperity is shared.
Part 2: From Bytes to Benefits: Digital Transformation as a Catalyst for Public Sector Productivity
Digital transformation has become a cornerstone of modernization for governments around the world, enabling institutions to operate more efficiently, citizens to access services more easily, and economies to capture new productivity gains.
Yet, the benefits of GovTech do not flow automatically. Experience across countries shows that digital tools translate into tangible improvements only when paired with strong institutions, coherent regulations, a digital skilled public service, and a culture of openness and accountability.
Today, Malaysia is at a crossroads, having committed significant financial and political capital to building a digitally ready government, with GovTech recognized as a driver of productivity and socio-economic transformation under its 12th and 13th Malaysia Plans.
Some challenges remain, including those relating to fragmentation of systems, skilled talent shortages, and limited user engagement. These limit GovTech’s potential to translate digital investments into tangible productivity gains.
Malaysia is well placed to lead in GovTech-driven productivity, but success will depend on sustaining reforms across the 4Ps, namely Platforms, Policies, People, and Participation:
Platforms: Strong digital foundations unlock efficiency at scale. Productivity gains hinge on robust digital infrastructure that reduces duplication, enables integration, and lowers transaction costs. Strengthening interoperability and enhancing the user experience across platforms, mainstreaming open-source adoption, and systematically monitoring enterprise architecture, cloud platforms, and interoperability frameworks will ensure that investments deliver system-wide efficiency rather than fragmented solutions.
Policies: Clear rules and accountable institutions turn technology into impact. Productivity depends not just on digital tools but on the institutions and regulations that govern them. Giving the National Digital Department (JDN) a stronger mandate to coordinate ICT budgets and oversee investments, enacting a Freedom of Information law, expanding the Data Sharing Act across all levels of government, and enforcing the “once-only” principle for data sharing will create the governance and trust needed for technology to translate into better outcomes.
People: A digitally skilled public service is the engine of transformation. Without the right skills, digital investments risk underutilization. Modernizing HR systems to embed digital competencies in recruitment, training, and performance management, while opening alternative pathways – such as secondments and professional career tracks – will help attract and retain scarce talent. Building and retaining a capable workforce is essential for ensuring that GovTech reforms are not just designed but effectively delivered.
Participation: Citizen- and business-centered services drive real productivity gains. Ultimately, GovTech must improve how users interact with the government, reducing time, cost, and complexity. Consolidating services under a single government service window, integrating core government-to-government systems, and closing adoption gaps among SMEs and underserved regions will ensure inclusivity and equity. Embedding feedback loops and co-design processes will further enhance trust and service quality, ensuring that productivity gains are widely felt.