INTRODUCTIONS

What is economics?
In general, economics is defined as the choices made on how resources are utilized or
allocated. According to Robin (1935, in Hillebrant 1993), economics is a scientific study of
peoples behavior in relationship to scarce resources that have various uses.In other words,
economics is the study of how humans and society make a choice on the resources that are
becoming scarce day by day (Khairani Ahmad,2009)
Construction economics is related to human needs for protection, comfort, and finding a
suitable shelter to live in. It must guarantee the effective use of resources in the industry in
addition to increasing construction work.
"Construction Economics is the construction Project to study of how individuals and groups
make decisions with limited resources as to best satisfy client's wants, needs, and desires".
(wiki answers)
It is obvious that the main objective of economic practitioners is the allocation of scarce
resources whereas that of construction economics practitioners is to fulfill basic human needs.
Traditionally, a building economists can be regarded as an adviser that gives advise and views
to his clients to get the best value for their money.

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Trends of the Malaysian Gross Domestic Product (GDP) for the last 35 years

The gross domestic product (GDP) is one the primary indicators used to gauge the
health of a country's economy. According to Peter Kennedy (2000) it represents the total
dollar value of all goods and services produced during a year. It is conventionally measured as
the precent rate of increse in real gross domectic product, or GDP.As economic growth is
measured as the annual percent change of National income it has all the advantaages and
drawbacks of that level variable.
The construction industry in Malaysia and national economic is interelated which is
the presence of a lot of construction activities indicate that the national economy is growing
whereas a reduction in construction means the national economy is depressed.

Year

Growth of GDP
(%)

Year

Growth of GDP
(%)

Year

Growth of GDP
(%)

1977

7.56

1992

7.80

2007

6.48

1978
1979
1980

7.56
9.35
7.30

1993
1994
1995

8.30
9.20
9.50

2008
2009
2010

4.81
-1.64
7.19

1981

6.90

1996

8.60

1982

5.90

1997

7.70

1983

6.30

1998

-4.80

1984

7.80

1999

5.40

1985

-1.10

2000

8.30

1986

1.20

2001

7.90

1987

5.40

2002

4.10

1988

8.90

2003

5.20

1989

9.20

2004

6.00

1990

9.70

2005

5.30

1991

8.70

2006

6.00

Table 1: Growth of GDP (1976-2010)

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Figure 1: Graph of GDP 1977- 2010

By looking at the trends, it is illustrated that when the national economy growth is on

the rise, the growth of the construction industry is doing better than the national economy. In
contrast, when the national economy is having a recession, the growth of the construction
industry will be even worse. The construction industry is regarded as one of the industries that
are responsive to any changes in the national economy. When the recession takes place in the
national economy, the construction industry is one of the first industries to experience its
effect. The number of construction activities will be decreased. When the economy is getting
better, the construction industry is one of the industries take a long time to recover.

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Figure 2: Graph of GDP, CI and Contribution of CI and GDP

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Gross Domestic Product by Kind of Economic Activity at Constant 2000 Prices (Rm
Million) 1990- 2012

Construction Sector
The construction industry constitutes an important element of the Malaysian economy.
Its strength and capability to host of economic sectors and supports to the social development
of the country through the provision of basic infrastructure. The growth of the construction
sector recovered after experiencing three consecutive years of decline, recording a major
recovered in the year 1999 at growth of -5.6% (1998 : -24.0%). In 2009, the global economy
had to pace itself against slow economic growth, including Malaysia. However, the
Construction Sector was the only sector that recorded a positive growth during every quarter
of 2009. We can attribute this trend to the proactive implementation agenda of the 9th
Malaysia Plan, the two Stimulus Packages amounting to RM67 billion as well as the relative
stability of building material prices.
The Malaysian construction industry is generally separated into two areas. One area is
general construction, which comprises residential construction, non-residential construction
and civil engineering construction. The second area is special trade works, which comprises
activities of metal works, electrical works, plumbing, sewerage and sanitary works,
refrigeration and air-conditioning works, painting works, carpentry, tiling and flooring works
and glass works. The construction industry makes up an important part of the Malaysian
economy due to the amount of industry linked to it such as those for basic metal products and
electrical machinery. Hence, the construction industry could be described as a substantial
economic driver for Malaysia.
Agriculture Sector
The agricultural sector (agriculture, forestry and fishery) grew at the moderate rate of
2.2% in 2007. This sector was supported by food related activities with a value added growth
of 4.9% (2006 : 6.8%). The slow performance of the industry main crop such as crude palm
oil due to the productions declining cycle, heavy rain which consistenly interrupted the cycle,
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heavy rain , dry spells and also the continuos reduction of planting area. Nonetheless, the
positive growth in the industrys main crop in 2007 were due to the significant increase in
crude palm oil prices, rubber prices increase and also by the declining of the logging which is
reduction demand from the Japan and conservation efforts.
Agriculture is still an important export earne. Malaysia is the world's largest producer
of palm oil lead by FELDA, accounting for almost half of the world's production. In the past,
the country also was the world's largest producer of rubber, but in the early 1990s it was
overtaken by Thailand and Indonesia. Malaysia remains the world's fourth-largest producer of
cocoa. Nevertheless, the share of agriculture in the GDP declined from 29 percent in 1970 to
12 percent in 1998.

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Economic Cycle Of Construction Sector Vs. The National Gdp

Economic Cycle Of Construction Sector
The construction boom in Malaysia started in the early 1990s in conjunction with the
development of huge projects. The Government has launched Vision 2020 to envision that
Malaysia will be a fully industrialised country by the year 2020. Towards this goal, the
government has invested heavily in modernising the infrastructure of the Kuala Lumpur
metropolitan area. The modernisation is designed to propel Malaysia into the digital age and
position it as a hub for high technology businesses in Southeast Asia.
The construction industry reached its peak 1995 where the GDP of construction
industry hit an amazing 17.3 percent. That rate of development was equivalent to the
developed countries. During the period from 1994 to 1997, the construction industry GDP
averaged at 14 percent.During the regional economic crisis in 1997-1998, output of the
industry experienced a bust cycle with a sharp drop in output. In 1998, output of the industry
contracted by 23 percent, after a robust and double-digit growth rate (Bank Negara Malaysia
2003). This was the worst slump for the construction industry.
While GDP grew at an average rate of 5.2 percent from 1999 to 2004, the construction
industry stagnated, recording an average growth of 0.4 percent over the same period. Output
for the construction industry hovered around the RM 7 billion mark, but steadily contracted as
a share of GDP, from 3.6 percent in 1999 to 2.9 percent in 2004. Its been estimated that a 10
percent increase in the construction industry's in productivity would result in a 2.5 percent
improvement in GDP (Stoeckel and Quirke, 1992) and that the construction industry
represents about 10 percent of the GDP for most countries (Olomolaiye et al.,1998).
From 2000 to 2007, GDP grew at an average rate of 5.46% while the construction
industry stagnated, recording an average growth of 0.7% over the same period. Output for the
construction sector hovered around the RM 7 billion mark, but steadily shrank as a share of
GDP, from 3.3% in 2000 to 2.5% in 2007 (refer to table 1).

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In RM - Millions 1987 prices

GDP
Year

GDP

Construction

Construction

Construction

Growth

sector

Sector

Sector Output

(%)

contribution to

Growth (%)

GDP (%)
1999
192,794
6,922
5.8
3.6
-5.6
2000
209,365
6,996
8.3
3.3
1.0
2001
210,480
7,159
0.4
3.4
2.3
2002
219,309
7,275
4.1
3.3
2.3
2003
231,674
7,417
5.3
3.2
1.9
2004
247,880
7,276
7.0
2.9
-1.9
2005
262,175
7,133
5.2
2.9
-1.6
2006
277,673
7,097
5.9
2.7
-0.5
2007
294,373
7,310
6.0
2.5
3.0
Source: Economic Reports, 2003-04, 2005-06, Ministry of Finance,Bank Negara Annual
Report 2006
Table 1: Malaysian Construction Industry and the Economy

A decline in the number of large-scale infrastructure projects is one of the major

immediate causes for the construction industry slowdown of recent years. The industry was
buoyed by major projects initiated by the Government in the early and mid-1990s four of
these projects alone contributed an estimated RM 600 billion in jobs (nearly ten times 2004
industry output) to the construction industry. Since the completion of these major projects
approximately five years ago, there have been no new large-scale projects announced by the
government, see Table 2.

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4th
Sectors (in

5th

6th

7th

8th

9th

Malaysia Malaysia Malaysia Malaysia Malaysia Malaysia

Plan

Plan

Plan

Plan

Plan

Plan

(1981-

(1986-

(1990-

(1996-

(2000-

(2006-

1985)
28,042
9,973
7,494

1989 )
22,886
8,764
2,527

1995 )
27,712
13,555
10,987

1999 )
47,172
31,284
11,644

2005 )
65,446
69,377
22,042

2010 )
89,886
74,954
21,203

281,144
207,907
75,897

811

1,123

2,451

8,937

13,135

13,957

40,414

Total
46,320
35,300
th
th
Source : 4 to 9 Malaysia Plan

54,705

99,037

170,000

200,000

605,362

RM Million)

Economic
Social
Security
General
Administration

Total

Table 2 : Federal Government Development Allocation / Expenditure, 1981-2010

Another reason for the slowdown of the construction industry is return of a cyclical
downturn in the business cycle that affects current performance. Based on the historical
statistics, the Malaysian construction industry has consistently been the smallest contributing
sector to the economy, contributing on average 3% to the total GDP. Its contribution to GDP is
less than 15 times smaller than that of the services sector and less than eight times smaller
than that of the manufacturing sector, see Table 3. Even when compared to neighbouring
countries, the contribution of the Malaysian construction industry to the nations GDP is much
lower as shown in Table 4.

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IN PERCENTAGE
GDP (RM Mill. 1987
prices)
Services Sector
Manufacturing Sector
Agriculture,
Livestock,

1999
192,794

2000

2001

209,365 210,480

2002

2003

2004

219,309

231,674

247,880

54.3

53.4

56.4

57.0

57.6

57.1

30.0

33.4

30.2

30.1

30.8

31.8

Forestry, and Fishing Sector

9.4
8.4
8.7
8.4
8.7
Mining and Quarrying sector
7.2
6.9
7.6
7.2
7.2
Construction Sector
3.6
3.3
3.4
3.3
3.2
Sources : Malaysian Economic Report 1999-2004, MOF, BNM Annual Report 2004

8.3
7.1
2.9

Table 3 : Contribution to GDP by sector

National GDP

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Malaysia's economic record has been one of Asia's best. Real gross domestic product
(GDP) grew by an average of 6.5% per year from 1957 to 2005. Performance peaked in the
early 1980s through the mid-1990s, as the economy experienced sustained rapid growth
averaging almost 8% annually.
Malaysia struggled economically during the 1997-1998 Asian financial crisis and
applied several valuable lessons to its economic management strategies that contributed to the
economys resilience to the 2008-2009 global financial crisis. GDP contracted 1.7% in 2009
compared to 4.6% growth in 2008, but has since rebounded, and is expected to be around 7%
in 2010.
In Malaysia, the Gross Domestic Product (GDP) in Malaysia expanded 2.8 percent in
the second quarter of 2011 over the previous quarter. Historically, from 2000 until 2011,
Malaysia's average quarterly GDP Growth was 1.17 percent reaching an historical high of
5.90 percent in September of 2009 and a record low of -7.60 percent in March of 2009.
Malaysia is a rapidly developing economy in Asia. Malaysia, a middle-income country, has
transformed itself since the 1970s from a producer of raw materials into an emerging multisector economy. The Government of Malaysia is continuing efforts to boost domestic demand
to wean the economy off of its dependence on exports. Nevertheless, exports of particularly of
electronics, remain a significant driver of the economy.
Economic growth momentum will probably moderate from 2011 onwards arising from
a weaker exports outlook. Further implementation of ETP projects and Budget 2012 handouts
will boost domestic demand, but unlikely to offset underperformance in net exports. Against
this background, MIER downgrades 2011 GDP growth rate to 4.6 percent year-on-year. For
2012, MIER revises the GDP growth forecast to 5.0 percent.

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Malaysia GDP Growth Rate (Jan 2007- Nov 2011)

GDP Growth of the Malaysian Economy vs. Construction Industry: 1974 - 2004

Construction Gross Domestic Product Output is low compared to the others

Gross Domestic Product (GDP) means the total money value during a year of all
production that has been take place inside a specific territory. Construction industry in the
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economy in term of gross domestic product is the total value for all organizations and process
from the aspect of purchasing of materials and services from other organizations.
The construction industry in Malaysia is seen as the economic growth engine and can
reflect the national economic situation. The presence of a lot of construction activities indicate
that the national economy is growing.
In order for the nation's economy to prosper, the construction industry has to be
developed first for the economy to take a one step further. The construction industry is
considered to be a major productive sector in Malaysia, for example output for the
construction sector hovered around RM 7248 million, RM 7168 million, and RM 7350
million in year 2004, 2005, and the estimate for 2006, respectively, (Budget Report 2006).
This sector is essential for development of the nation.
It is among the top three of the major economic sectors. The other two sectors being
manufacturing and agriculture, which contribute to the national output. For instance, the
contribution to gross domestic product (GDP) in 2004 by manufacturing, agriculture and
construction sector is 57.1, 8.3, and 2.9 percent, respectively, (Construction Industry Master
Plan (CIMP), 2005).
The construction industry's output is relatively small when compared to the other
sectors in Malaysia. Even though the contribution of this industry is small, which the average
is 4% of the gross domestic product (1980-2006), it has an important role to play in the
economy as the building and construction activities support various industries such as
manufacturing, mining, transportation and facilities, and services.

The reason on why the construction industrys output is relatively small compare to the other
sector in Malaysia is because :
1.
2.
3.
4.
5.

Construction takes long period of time to accomplish.

Not many parties want to involve in this construction industry.
Organizations need a lot of capital cost to begin a construction.
The step and process of construction is complicated compared to the other industries.
Experiences required taking parts in construction sectors.

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CONCLUSIONS
From the trends of GDP and construction industry, we can conclude that growth of the
construction industry is better than the national economy. On the other hand, when the
national economy is experiencing a downturn, the growth of the construction industry will be
even lower. When the national economy is experiencing a downturn, the construction industry
is one of the first industries to feel its impact: construction activities will be reduced and when
the economy is improving, the construction industry is also one of the last to recover.
The growth of construction output generally follows the trend of the economy but the
peaks and the troughs are more extreme. The output increase when economic growth
strengthens and falls even lower when the economy weakens. In addition, the construction
industry grows at a faster rate than the economy during periods of rapid economic growth.
During period of economic downturn the industry experience greater declines and remains in
recession longer than the economy. This reflects the cumulative interaction of the multiplier
and accelerated effects on demand for construction as a result of the changes in the economy.

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REFERENCES
Ahmad, K. (2009) Costruction economics. Published by Pearson Malaysia SDN. BHD.
Petaling Jaya, Selangor.
Bank

Negara

Malaysia

(2010).

Economics

development

in

2010.

http://www.bnm.gov.my/files/publication/ar/en/2010/cp01.pdf
Goh, S.K and Lim, M.H.M (2010). The impact of the global financial crisis: the case of
malaysia.

twn

global

economy

series.

published

bu

third

world

network.

http://www.twnside.org.sg/title2/ge/ge26.pdf
Malaysian Institute of Economic Research. 2011. Malaysian Economic Outlook. [ONLINE]
Available at: http://www.mier.org.my/outlook/.
Malaysia GDP Growth Rate. 2011. Malaysia GDP Growth Rate. [ONLINE] Available at:
http://www.tradingeconomics.com/malaysia/gdp-growth.
Malaysia

Asia.

2009.

Economy.

[ONLINE]

Available

at:

http://www.traveldocs.com/my/economy.htm

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