For this macroeconomic analysis, I have selected two countries. They are Malaysia and New Zealand. I wish to conduct a macroeconomic analysis by comparing the economic growth, unemployment, inflation, exchange rate, and net exports of two countries
Brief explanation to the economies of Malaysia and New Zealand
Malaysia can be considered as the 4th largest economy in the Southeast Asian region and 36th largest economy in the world. It is a newly industrialized economy and in the year 2019, this was the 27th competitive economy in the world (Schwab & World Economic Forum, 2019). But COVID 19 pandemic very badly affected the every sector of the economy of Malaysia.
New Zealand can be considered as a highly developed nation and free market economy in the world (Hall & Soskice, 2001). According to Nominal Gross Domestic Product (GDP) statistics, country has been ranked as the 52nd economy of the world. This country owns well established service sector which accounts for 63 percent from the GDP (Stats NZ archive website | Stats NZ, 2014).
Aim of this macroeconomic analysis
In this study, I will compare the economy of Malaysia and economy of New Zealand using the data of past five years by understanding macroeconomic issues of each countries. For that, I will use macroeconomic fundamentals including economic growth, unemployment, inflation, exchange rate, and net exports of two countries. I wish to discuss about trends of the above-mentioned macroeconomic fundamentals and factors affected to them. Also, I will discuss what countries can learn from each other.
Economic Growth of Malaysia and New Zealand
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When we see data from year 2016 to 2019, GDP growth of the Malaysia was more than 4%. In the year 2017, Malaysia recorded the highest GDP growth rate (5.81%) during the period of 2016 to 2019. Most relevant reason for this economic growth was rebound of the agricultural sector and improvement of the manufacturing and service sectors (Department of Statistics Malaysia Official Portal, 2021). But in the year 2020 economy of Malaysia contracted from 5.59 as a result of the COVID 19 pandemic.
From year 2016 to year 2020, GDP growth of New Zealand has showed a growth but at a decreasing rate. In the year 2016, GDP growth of New Zealand was 3.73% and it has decreased to 0.98% in the year 2020. As major reasons for this slowing economic growth, we can say, trade tension and global economic contraction as a result of the COVID 19 pandemic (Shane, 2019).
Average economic growth of Malaysia is higher than New Zealand. Although Malaysia has recorded 5.59 economic contraction in the year 2020, average GDP growth of Malaysia is higher than New Zealand for the period of 2016 to 2020. So, New Zealand should take more policies to strengthen the agricultural, manufacturing and service sectors of the county to achieve a higher GDP growth rate.
Unemployment of Malaysia and New Zealand
Malaysia has shown lower and consistent unemployment approximately 3% until the year 2020, which indicates the population of Malaysia is near to full employment. In 2014, the country’s rate of unemployment was at its lowest level, at 2.85% (O’Neill, 2021). And during the last five years in 2018 also we can see that there is a lower unemployment rate than in other years (O’Neill, 2021). Malaysia’s economy is recognized as a growing economy which is one of the most powerful in Southeast Asia. The reasons are the low unemployment rate, excellent growth rates annually and political stability. The highest unemployment rate for Malaysia from 2016 to 2020 is in the year 2020 with an unemployment rate of 4.55%. The reason for this is that the world was experiencing Covid-19 Pandemic from the last quarter of 2019.
For New Zealand, the highest rate from 2016 to 2020 is in the year 2016, with an unemployment rate of 5.08%. The figures show unemployment fell gradually from 5.08% to 4.07% from 2016 to 2019. For New Zealand, the lowest unemployment rate was in 2019, with an unemployment rate of 4.07% (O’Neill, 2021d). And in 2020 again unemployment rate increased to 4.55% because of the Covid-19 Pandemic.
Malaysia has an average unemployment rate of 3.602% whereas New Zealand has an average unemployment rate of 4.54%. New Zealand’s average unemployment rate trumps that of Malaysia’s. But in 2020 both countries’ unemployment rate is equal. However, government of New Zealand should learn that how Malaysia has taken actions to reduce the unemployment. They should strengthen the labour market of the country, improve the labour skills, knowledge, laws and regulations and so on.
Inflation of Malaysia and New Zealand
Inflation can be defined as an increase in the general level of prices during a specified period in an economy (Amadeo, 2020). Most economists believe that an inflation rate of 2% to 3% is optimal for a country’s economy. If there is high inflation in a country, that leads to increased unemployment level because businesses would rather wait and hire more people at the same price using future funds and making labor cheaper.
The highest inflation rate in Malaysia was in the year 2017 with an inflation rate of 3.8%. And there is a significant decrease in inflation in 2018. The lowest inflation rate for Malaysia was in 2020, with an inflation rate of -1.14%. The expected inflation rate for 2021 is 2% (O’Neill, 2021).
The highest inflation rate in New Zealand was in the year 2017 with an inflation rate of 1.85%. The lowest inflation rate for New Zealand is in the year 2016 during the last five years, with an inflation rate of 0.65%. The expected inflation rate for 2021 is 1.83%. (O’Neill, 2021)
The average inflation rate for Malaysia is 1.274%, whereas the average inflation rate for New Zealand is 1.488%. Overall, New Zealand’s inflation rate is higher (Compare countries | TheGlobalEconomy.com, 2010). Both countries’ inflation rates do not have a consistent tendency; they change continually throughout five years. There is deflation in both countries in some years. When there is deflation, the investors want to save their money and wait for it to grow in value before investing. This is a major issue in deflation.
Exchange Rate of Malaysia and New Zealand (Compared to the USD)
Average exchange rate of Malaysia was 0.24 US Dollars within the period of year 2016 to 2020. That means averagely a Malaysia Ringgit was valued 0.24 Us Dollars. But this exchange rate has been fluctuated over the period as presented in above graph. Although country recorded higher GDP in the year 2017, exchange rate has been depreciated as a result of the declining of crude oil prices and increasing of debt. But country could increase the exchange rate in the next year (2018) up to 1 Malaysian Ringgit = 0.248 USD. Again exchange rate has been fallen in the year 2020, as a result of the COVID 19 pandemic.
Average exchange rate of New Zealand was 0.682 US Dollars within the period of year 2016 to 2020. That means averagely a New Zealand Dollar was valued 0.682 Us Dollars. But this exchange rate has been decreased over the period of 2018 2020 as presented in above graph. Although country recorded higher Exchange rate in the year 2017, exchange rate has been depreciated from year 2018 to 2020 as a result of the decreasing the prices of the exports and bad effect of the COVID 19 pandemic. (FocusEconomics, n.d.)
Average exchange rate of the New Zealand is higher than Malaysia. But trends of the exchange rates of both countries cannot be appreciated. Because in Malaysia, there were higher fluctuations in the exchange rate and in New Zealand, exchange rate was continuously declining from year 2018 to 2020. However, if there was no COVID 19 pandemic, we could expect that exchange rate of both countries might better in the year 2020.
Net Exports of Malaysia and New Zealand
|New Zealand (USD)||1378623891||1816898604||(678174333)||(591319258)||2569309689||899067718.5|
Average net exports (total goods and services exports – total goods and services imports) of Malaysia were USD 22,993,484,193 within the period of year 2016 to 2020. When we consider about year 2016 to 2019, net exports of Malaysia have been continuously increased. In the year 2016, net exports were valued USD 19,990,335,309 and it has been increased up to USD 27,150,908,125 in the year 2019. Because Malaysia is an export oriented economy which exports large amount of goods and services to other countries in the world. But in the year 2020, Net export value of the Malaysia has been sharply decreased as a result of the decreasing exports since COVID 19 pandemic.
Average net exports of New Zealand were USD 899,067,718.5 within the period of year 2016 to 2020. There was a significant level of fluctuations in the net exports of the New Zealand. Especially in the year 2018 and 2019, there negative values of net exports. This is one of the major reasons for the decreasing BOP value and decreasing exchange rate of the country. But in the year 2020, New Zealand could increase the net export value although there was bad effect of COVID 19 pandemic.
Average net exports of Malaysia were USD 22,993,484,193 and average net exports of New Zealand were USD 899,067,718.5 within the period of year 2016 to 2020. If we neglect the bad effect of COVID 19 pandemic, Net exports of Malaysia have been continuously increased. But net export value of New Zealand has been fluctuated and especially in the year 2018 and 2019, there negative values of net exports. So, New Zealand should take actions to increase its exports and should learn to make an export friendly economy like Malaysia. New Zealand should decrease the export duties and taxes, prices of the goods and services, make more trade relationships with other countries and so on.
Conclusion and recommendation of the Macroeconomic Analysis
According to this macroeconomic analysis about past five years, overall economic performance of Malaysia is better than New Zealand. Although Malaysia has recorded 5.59 economic contraction in the year 2020, average GDP growth of Malaysia is higher than New Zealand for the period of 2016 to 2020.
So, New Zealand should take more policies to strengthen the agricultural, manufacturing and service sectors of the county to achieve a higher GDP growth rate. If we neglect the bad effect of COVID 19 pandemic, Net exports of Malaysia have been continuously increased. But net export value of New Zealand has been fluctuated and especially in the year 2018 and 2019, there were negative values of net exports. So, New Zealand should take actions to increase its exports and should learn to make an export friendly economy like Malaysia.
However New Zealand could control COVID 19 pandemic very successfully by minimizing the bad effect of pandemic to the economy. But, economy of Malaysia was very badly beaten by COVID 19 pandemic. So, Malaysia should learn the health practices, social distance practices and economic stimulus policies from New Zealand.
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