Is Malaysia’s Economy a Porsche on paper and a Proton on the Ground?

 

According to the Department of Statistics Malaysia, Malaysia’s economy grew 6% in the second quarter of 2026, the country’s strongest Q2 growth outside the pandemic period since 2014. Unemployment stood at 3.0% for the quarter, edging up only slightly from 2.9% in Q1. Headline inflation rose to a modest 1.9%. By almost every conventional measure, the Malaysian economy is performing well. Yet the picture looks very different for the rakyat.

There is a persistent sense that wages are not stretching as far as they used to, that costs keep climbing even as official inflation stays low, and that the prosperity in the national accounts simply is not showing up in household budgets.

A regional survey released in September found cost of living to be Southeast Asia’s single biggest social concern, cited by 42% of respondents, with Malaysia’s own optimism levels notably tempered by it.

Source: https://en.wikipedia.org/wiki/Formula_One

The economy is growing but the people are not feeling it. So, the million-dollar question is, why? What follows is one attempt at an answer, not the final word on it. It starts with a simple observation: everyone is technically competing in the same race, but nobody is driving the same car.

Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour has been explicit about what is driving the headline figure: manufacturing strength on continued global demand for electrical and electronic components tied to artificial intelligence and data centre construction. This is real, but narrow, dependent on capital-intensive investment, global supply chains, and a relatively small number of large export-oriented firms.

These are Porsches in Malaysia’s economic race, purpose-built for this exact moment in the global economy. They cross the line first, and that part is real.

A new data centre or expanded chip fabrication line creates high-value jobs for engineers and technicians, but it does not, in the short run, raise the income of a retail assistant in Kuching, a hawker stall operator in Chemor, or an administrative clerk in Johor Bahru.

The same Q2 data also show what the rest of the field is driving. Agriculture contracted 3.7%, reversing from 2.6% growth in Q1, on weak oil palm and fishing output. Services eased slightly too, to 5.4%, though it remains the largest single contributor to overall growth. Mining is the exception worth an explanation. It rebounded to 10.2% growth after contracting in Q1, but this tracks global energy prices amid the Middle East conflict, not any shift in the sector’s role for ordinary workers, mining employs a small fraction of the workforce compared with agriculture, retail, or services. None of these domestic-facing sectors are accelerating the way the AI-linked engine is, nor should they be expected to. They are also where most of the workforce is employed.

DOSM figures show MSMEs accounted for almost half of total employment in 2025, 48.7%, or 8.09 mil people, spread across retail, hospitality, agriculture, and small-scale manufacturing. This is the sedan most working Malaysians are actually driving: reliable enough for daily use but never built to keep pace with an F1 car. Above all, the gap is not a matter of effort. Same fuel, different costs.

Roughly a year into BUDI95, Malaysia’s flagship fuel subsidy rationalisation, its lagging effects are starting to show. Full rollout came in September 2025, followed by a further quota cut this past April, and it’s this ongoing tightening that distinguishes this lap of the race from Malaysia’s past two-speed moments. The issue is not whether the policy makes sense, but how unevenly its impact lands. Every car runs on fuel, but a rise in fuel cost does not register the same way for every car.

Transport and logistics costs seep into nearly every other price, and when they rise for households no longer covered by blanket subsidies, the effect does not show up cleanly in the 1.9% headline inflation figure.

It shows up instead in what many Malaysians experience as everyday inflation, food away from home, transport-dependent services, the small recurring costs of running a household or small business.

A household on the domestic-facing track, where income growth has been modest, experiences the same subsidy adjustment as a proportionally larger bite out of a budget that was not expanding to begin with. The policy may be sound and necessary. Its distributional timing, arriving while one part of the economy surges and the other merely holds steady, is what turns a fiscally responsible reform into felt financial strain for a large share of the population.

To return to the analogy: the Proton sedan feels this pinch immediately as its budget was never built with much margin. The Porsche, by contrast, barely notices the same rise in fuel cost against a defined revenue stream from various businesses of its owner. Different cars need different strategies.

To be clear, I am not arguing against subsidy rationalisation. Fiscal discipline, targeted subsidy reform, and Malaysia’s push to attract high-value AI and data centre investment are each sound policy directions on their own merits, and the second quarter’s figures reflect real, creditable achievement. This is not a case of Malaysia’s economic management having failed. The issue is sequencing and absorption, not direction, and no amount of steady driving closes a gap between two fundamentally different machines. Something else may need to change the terms of the race. 

Malaysia is not the first country to face this problem, a narrow, foreign-investment-driven engine generating headline growth the rest of the economy does not proportionately feel. Ireland offers one parallel worth considering: a small number of multinational tech and pharmaceutical firms account for a strikingly large share of its corporate tax revenue, disconnected from activity in the rest of the Irish economy. Dublin’s response, modelled explicitly on Norway’s sovereign wealth fund, has been to divert a portion of that windfall into long-term investment vehicles rather than spend it through the ordinary budget. Notwithstanding, Ireland’s own fiscal watchdog has warned the government is saving too little of it and spending too much now, a reminder that the temptation to let the fast car keep everything it earns is not unique to any one country.

Malaysia’s version of this question, whether AI-linked investment and export revenue should be treated, in part, as a windfall to be channelled deliberately toward the rest of the field, deserves its own careful examination.

A sedan does not become a Porsche by driving more carefully. Understanding where the growth is coming from, and where it has not yet reached, seems a reasonable place to start before anyone proposes how to bring the rest of the field closer to the front.

Reference:

Malaysia’s economy is an F1 car on paper, a sedan on the ground, Dr Mohd Zaidi Md Zabri, Focus Malaysia, 28 Sept 2026