Slow population growth hampers efforts to raise income, productivity - analysis

Malaysia's decreasing population growth is requiring the nation to focus more on raising incomes and productivity, rather than relying on an expanding workforce and consumer base. According to an analysis by Girish Mavath Ramachandran, the founder of 27 Group, live births dropped from 521,136 in 2015 to 414,918 in 2024, while the total fertility rate decreased from 2.0 to about 1.6, falling below the replacement level of 2.1.

This demographic shift is becoming more apparent, with concerns about whether the economy can maintain growth in household purchasing power and job creation as population growth slows.

Malaysia's median household income rose by 53% from RM4,585 in 2014 to RM7,017 in 2024, with real median household income increasing by about 27% after adjusting for inflation. However, the challenge is ensuring future income growth remains strong as demographic expansion becomes a weaker source of economic momentum. The focus will shift towards generating more economic value and higher incomes per person, rather than depending on a larger number of households, workers, and consumers.

Businesses will need to increase productivity, move into higher-value activities, and improve employee skills to sustain wage growth and competitiveness. The 13th Malaysia Plan aims for an annual average labor-productivity growth of 3.6% between 2026 and 2030, with productivity at the forefront of efforts to raise incomes while maintaining economic competitiveness.

The demographic shift also impacts Malaysia's education system. While primary school enrollments are declining, higher education enrollment continues to rise. Ensuring graduates possess skills aligned with higher-value economic activities is crucial, especially as artificial intelligence becomes increasingly important. Businesses will need to redesign processes, retrain employees, and deploy AI to produce more valuable output.

Schools and universities must equip students with the ability to evaluate, apply, and govern AI, rather than merely using it to generate answers.

As Malaysia faces a growing need to manage labor supply strategically, including through skills development and targeted migration, the broader economic test becomes clearer: with population growth slowing, the nation must generate more income and economic value from each worker and household. While a smaller or slower-growing population does not necessarily mean a weaker economy, it does mean Malaysia will have less demographic growth to rely on.

This necessitates a focus on productivity, skills, investment, and the quality of jobs to ensure the country's economic future remains strong.