Malaysia has a relatively open state-oriented market economy that is still growing. The state plays a significant but declining role in guiding economic activity through implementing macroeconomic plans. Malaysia experienced an economic boom and underwent rapid development by the end of the 20th century. One of the reasons behind this was that the Southeast Asian nation transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. This economic progress had as a result Malaysia to become the 29th largest economy in the world by purchasing power parity in 2007.

Despite the fact that the economy was in a constant process of growth it did not manage to avoid the consequences of the global economic crisis. The first indication of this phenomenon was apparent in the manufacturing sector towards the end of 2008, when both private investment and exports contracted sharply. Furthermore, the GDP growth slowed to 4.8% in 2008 a figure significant lower from the 5.8% that the country had as an average in the previous 3 years. The results of the economic crisis were more significant in the early 2009 as the manufacturing-led downturn intensified and spread through the economy, from the tradable into the non-tradable sector and from corporate into household demand.

The economic downturn had as a direct effect the weakening of the labor market. Although not in a very large scale retrenchments have been on the increase. Furthermore, companies cut labor costs in other ways, namely through the reduction of working hours, as several factories particularly in the electronics sector, had to close or reduce operations significantly. An important amount of job losses are also observed in trade, hotels & restaurants, and in the financial services sectors.

The aforementioned situation was illustrated in the unemployment rate of the country that is constantly increasing since 2008. The unemployment rate then was at 3.7%. In the 1st quarter of 2009 Job retrenchments were recorded at 12,590 positions, a relatively large figure if compared to 13,851 that the country faced during 2008. As a result the unemployment rate rose to 4% by March 2009.

Nevertheless, the Malaysian economy recovered significantly and in a relative short time. Economic activity showed signs of improvement in the 2nd quarter of 2009 a point that was further visible in the 3rd & 4th quarter. Consumption, fixed investment, and exports were all improved. Malaysia’s export performance illustrates the situation properly. Exports fell by some 31% year-on-year during the first 6 months of 2009. Since then, exports have grown at an average monthly rate of 4% due to the fact that stronger demand from several countries in East Asia and U.S.A.

After a period of strong growth, Malaysia’s economy has been hit hard by the global economic downturn. Nevertheless, the recovery from it was quick. The country has the potentiality to remain in a noteworthy economic position. Malaysia is one of three countries that control the Strait of Malacca and therefore international trade plays a great role in the national economy. Additionally, exports of electronics remain a significant driver for the economy and as being an exporter for Gas & Oil, Malaysia has an additional source for the National income.