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

people’s 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.

YearGrowth of GDP

(%)Year

Growth of GDP

(%)Year

Growth of GDP

(%)

1977 7.56 1992 7.80 2007 6.48

1978 7.56 1993 8.30 2008 4.81

1979 9.35 1994 9.20 2009 -1.64

1980 7.30 1995 9.50 2010 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

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1991 8.70 2006 6.00

Table 1: Growth of GDP (1976-2010)

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.

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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 production’s declining cycle, heavy rain which consistenly interrupted the cycle,

heavy rain , dry spells and also the continuos reduction of planting area. Nonetheless, the

positive growth in the industry’s 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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Year

In RM - Millions 1987 prices GDP

Growth

(%)

Construction

sector

contribution to

GDP (%)

Construction

Sector

Growth (%)

GDP Construction

Sector Output

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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Sectors (in

RM Million)

4th

Malaysia

Plan

(1981-

1985)

5th

Malaysia

Plan

(1986-

1989 )

6th

Malaysia

Plan

(1990-

1995 )

7th

Malaysia

Plan

(1996-

1999 )

8th

Malaysia

Plan

(2000-

2005 )

9th

Malaysia

Plan

(2006-

2010 )

Total

Economic 28,042 22,886 27,712 47,172 65,446 89,886 281,144

Social 9,973 8,764 13,555 31,284 69,377 74,954 207,907

Security 7,494 2,527 10,987 11,644 22,042 21,203 75,897

General

Administration 811 1,123 2,451 8,937 13,135 13,957 40,414

Total 46,320 35,300 54,705 99,037 170,000 200,000 605,362

Source : 4th to 9th Malaysia Plan

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 nation’s GDP is

much lower as shown in Table 4.

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IN PERCENTAGE 1999 2000 2001 2002 2003 2004

GDP (RM Mill. – 1987

prices)192,794 209,365 210,480 219,309 231,674 247,880

Services Sector 54.3 53.4 56.4 57.0 57.6 57.1

Manufacturing Sector 30.0 33.4 30.2 30.1 30.8 31.8

Agriculture, Livestock,

Forestry, and Fishing Sector 9.4 8.4 8.7 8.4 8.7 8.3

Mining and Quarrying sector 7.2 6.9 7.6 7.2 7.2 7.1

Construction Sector 3.6 3.3 3.4 3.3 3.2 2.9

Sources : Malaysian Economic Report 1999-2004, MOF, BNM Annual Report 2004

Table 3 : Contribution to GDP by sector

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National GDP

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

economy’s 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 multi-

sector 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

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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

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 industry’s output is relatively small compare to the other

sector in Malaysia is because :

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1. Construction takes long period of time to accomplish.

2. Not many parties want to involve in this construction industry.

3. Organizations need a lot of capital cost to begin a construction.

4. The step and process of construction is complicated compared to the other industries.

5. 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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