KUALA LUMPUR, May 14 — The World Bank projects Malaysia’s economy to record solid growth of 4.4 per cent this year, with domestic demand continuing to anchor activity.

World Bank division director for the Philippines, Malaysia and Brunei Zafer Mustafaoglu said, however, the near-term outlook is subject to considerable uncertainty as risks are tilted to the downside.

“Geopolitical conflict and trade tensions, weaker global growth, financial market volatility, and 

policy uncertainty in major economies could all weigh on trade and confidence,” he said in his welcoming address at the launch of the April 2026 Malaysia Economic Monitor here, today. 

He said that as a highly open economy, Malaysia remains exposed especially through trade and financial channels.

Malaysia’s growth outperformed expectations in the second half of 2025 even in a profoundly uncertain global environment, he noted.

“That lifted full-year growth to a robust 5.2 per cent, driven by strong domestic demand and export performance. This remarkable outcome reflects the economy’s underlying strength and resilience,” he added.

At the same time, Mustafaoglu highlighted that Malaysia is facing an important challenge: while employment remains strong, productivity growth is modest.

“The result is underemployment, with many graduates in roles that do not fully utilise their skills.

This is not only a labour market issue but the underutilisation of human capital is a business dynamism issue.

“When the business environment is hampered by insufficient market contestability, uncompetitive regulations and cumbersome approval processes, uneven access to finance, and slow insolvency processes, business innovation is limited, weakening productivity and wage growth,” he added.

He also said that Malaysia’s jobs challenge is fundamentally a productivity challenge and if productivity growth does not increase, wages cannot rise sustainably. 

“Addressing this challenge requires shifting from job quantity to job quality. The report highlights three priorities, namely unlocking a more dynamic business environment, to ignite innovation and channel finance to productivity, and to equip workers with the right skills and build future-ready human capital,” he said. — Bernama

KUALA LUMPUR, May 14 — Malaysia’s top frontier firms have either failed to scale up or not innovated enough, hampering competitiveness and the creation of high-paying jobs, leading to underemployment concerns, according to the World Bank.

The warning comes as the bank raised concerns about skills-related underemployment among graduates in Malaysia, which it noted has risen over the last decade.

“Firm-level evidence reinforces this diagnosis. Most productive firms in Malaysia are not yet scaling as strongly as intended. This is a challenge as they offer better-paying jobs,” the bank said in its latest Malaysian Economic Monitor released this morning.

Data indicating that national frontier firms are falling behind global productivity levels makes the challenge harder to overcome, it added.

While lagging firms have caught up domestically, the productivity gap between Malaysia’s best companies and global players has “widened”, according to the report.

“Technology generation and commercialisation have not improved, partly due to limited university-industry collaboration and technology transfer from foreign firms as well as brain drain of Malaysian investors,” it said.

“This performance constrains competitiveness and the creation of high-wage jobs.”

Job data masking underemployment  

Rising underemployment among the country’s educated young belies data that suggests positive labour market growth. 

While hiring and labour participation rate may be the highest from 2014 to 2024, data indicating rising underemployment over the last decade tell a slightly bleaker story — high-productivity job creation is not keeping pace with rising workforce capabilities.

Despite some improvement in recent years, more than one-third of tertiary-educated workers are now employed in jobs below their qualification level, weakening the translation of human capital into higher productivity and earnings, the bank noted.

“This primarily reflects demand-side constraints — firms are not creating enough high-skill, high-productivity jobs to absorb an increasingly educated workforce,” it said.

“Skills mismatches and capability gaps, however, compound the problem.”

Focus on ‘quality jobs’ creation

Malaysia ranks highly in the region in terms of upward mobility, according to data from the World Bank and the World Economic Forum (WEF), but it still faces challenges compared to global high-income leaders.

In the report, the bank said while Malaysia may have expanded education, employment, and incomes over two decades of steady growth, real wage gains have been modest relative to rising education, even if they broadly align with productivity.

Malaysia’s central challenge is no longer job creation per se, the bank added, since labour force participation is at historically high levels and unemployment remains low, with the economy demonstrating a strong capacity to generate jobs in aggregate.

“The more pressing challenge, rather, is the creation and scaling of high-quality, and well-matched roles which result in significant wage growth,” the report said.

As a policy recommendation, the bank emphasised going beyond raising the wage floor through labour market regulation and shifting the focus towards creating “quality opportunities” and the build-up of relevant capabilities for Malaysian workers.