The Malaysian economy registered a stronger growth of 14.2% in the third quarter of 2022 versus 8.9% in Q2), Bank Negara says while there were base effects from the negative growth in the third quarter of 2021, growth was also driven by strong domestic demand, underpinned by improvements in labour market and income conditions, as well as ongoing policy support.
Exports remained supported by strong demand for E&E products while the recovery of inbound tourism lent further support to economic activity. By sector, the services and manufacturing sectors continued to drive growth. On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.9% (2Q 2022: 3.5%). Overall, the Malaysian economy expanded by 9.3% in the first three quarters of 2022.
The central bank added the headline inflation is likely to have peaked for the year at 4.5% during the quarter while core inflation increased further to 3.7% (2Q 2022: 2.5%). As expected, the increase in headline inflation was largely driven by the base effect from the discount on electricity bills implemented in the third quarter of 2021, as well as sustained increases in core inflation and price-volatile items. The inflationary pressures reflected the confluence of elevated cost pressures, particularly for food-related items, and strong demand conditions.
As for the local currency, the ringgit depreciated by 4.9% against the US dollar in the third quarter of 2022 (YTD until 9 November 2022: -11.2%), in line with regional currencies which depreciated by an average of 5.5% (YTD: -9.5%). This reflected the continued strengthening of the US dollar amid further monetary policy tightening by the US Federal Reserve and higher investor risk aversion due to moderating global growth prospects.
Net financing to the private sector grew by 5.4% (2Q 2022: 4.9%) supported mainly by higher outstanding loan growth (6.1%; 2Q 2022: 5.4%), driven by the household segment. Meanwhile, outstanding corporate bond growth remained sustained at 3.5% (2Q 2022: 3.4%). Outstanding business loan growth stood at 5.0%, as the growth in loan repayments outpaced that of loan disbursements. Loan applications remained forthcoming across segments and most loan purposes. For households, outstanding loans grew by 6.2% mostly on account of high growth in loan disbursements for the purchase of houses and car.
Bank Negara opines that the economy will continue to expand, albeit at a more moderate pace, in the fourth quarter of 2022. The expected slower pace of growth reflects the more challenging global environment as well as the absence of base effects. Looking ahead, the Malaysian economy is expected to expand by 4.0 – 5.0% in 2023. Bank Negara Malaysia Governor Tan Sri Nor Shamsiah explained, “The Malaysian economy will continue to be supported by firm domestic demand amid continued improvements in the labour market. Growth would also benefit from the realisation of large infrastructure projects as well as higher tourist arrivals. However, Malaysia’s growth remains susceptible to a weaker-than-expected global growth, higher risk aversion in global financial markets, further escalation of geopolitical conflicts and re-emergence of supply chain disruptions.”
Headline inflation is expected to moderate in the fourth quarter of 2022, but remain elevated. The base effect from the discount on electricity bill which contributed to higher inflation in the third quarter will dissipate in the fourth quarter of 2022. Overall, headline inflation is expected to average at 3.3% in 2022. Underlying inflation, as measured by core inflation, is expected to stay elevated for the remainder of 2022 given improving demand amid the high-cost environment.
Moving into 2023, headline and core inflation are expected to remain elevated amid both demand and cost pressures, as well as any changes to domestic policy measures. Additional upward pressures to inflation will remain partly contained by the existing price controls, subsidies, and the remaining spare capacity in the economy. The balance of risk to the inflation outlook in 2023 is tilted to the upside and continues to be subject to domestic policy measures on subsidies, as well as global commodity price developments arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions.