The Malaysian economy expanded by 3.3% in the third quarter of 2023 (2Q 2023: 2.9%), Bank Negara Governor Datuk Abdul Rasheed Ghaffour said growth was anchored by resilient domestic demand.
Reporting on the 3Q performance, according to BNM household spending remained supported by continued growth in employment and wages. Meanwhile, investment activity was underpinned by the progress of multi-year projects and capacity expansion by firms. Exports remained soft amid prolonged weakness in external demand. This, however, was partially offset by the recovery in inbound tourism. On the supply side, the services, construction and agriculture sectors remained supportive of growth. This was partly offset by the decline in production in the manufacturing sector given the weakness in demand for electrical and electronic (E&E) products and lower production of refined petroleum products. On a quarter-on-quarter seasonally adjusted basis, the economy grew by 2.6% (2Q 2023: 1.5%). Overall, the Malaysian economy expanded by 3.9% in the first three quarters of 2023.
Headline inflation continued to moderate to 2% (2Q 2023: 2.8%) during the quarter. The moderation was recorded in both non-core inflation and core inflation. For non-core inflation, fresh food and fuel contributed to the decline. Core inflation declined further to 2.5% (2Q 2023: 3.4%) but remained above its long-term average (2011-2019 average: 2%). The moderation in core inflation was largely contributed by selected services, including food away from home, expenditure in restaurants and cafés, and personal transport repair and maintenance. Inflation pervasiveness declined as the share of Consumer Price Index (CPI) items recording monthly price increases moderated to 40.8% during the quarter (2Q 2023: 42.7%), below the third quarter long-term (2011-2019) average of 44.5%.
Domestic financial conditions were driven mainly by evolving expectations over the global monetary policy path. In particular, the strength of the US job markets has prompted expectations for a tighter-for-longer policy stance by the US Federal Reserve and subsequently higher US and global interest rates. In contrast, the People’s Bank of China undertook further monetary policy easing to address weaker-than-expected growth in China, which dampened investor
sentiments towards the region.
Against this backdrop, the US dollar appreciation extended into the quarter, and the Malaysian ringgit ended up depreciating by 0.2% alongside other regional currencies. However, the ringgit appreciated by 1.4% against a basket of major trading partner currencies, as indicated by the ringgit nominal effective exchange rate (NEER)
The growth in credit to the private non-financial sector improved to 4.2% (2Q 2023: 3.7%), supported by higher growth in business loans (1.6%; 2Q 2023: 0.5%) while outstanding corporate bonds growth was sustained at 5% (2Q 2023: 4.9%). The higher business loan growth was driven mainly by improving growth in working capital loans to non-SMEs. Of note, SME loan growth remained forthcoming (6.7%; 2Q 2023: 6.4%). For households, outstanding loans expanded by 5.4% (2Q 2023: 5.1%), reflecting steady growth across key purposes.
Going forward, growth will remain resilient despite external headwinds on account of firm domestic demand BNM Governor Datuk Abdul Rasheed Ghaffour says, “Despite the challenging global environment, the Malaysian economy is projected to expand by around 4% in 2023 and 4% – 5% in 2024. Growth will continue to be driven by the expansion in domestic demand amid steady employment and income prospects, particularly in domestic-oriented sectors. This growth performance
along with other favourable economic developments would provide support to the ringgit.”
Improvements in tourist arrivals and spending are expected to continue. The investment will be supported by further progress of multi-year infrastructure projects and the implementation of catalytic initiatives. Measures under Budget 2024 will also provide additional impetus to economic activity. The growth outlook remains subject to downside risks stemming primarily from weaker-than-expected external demand as well as larger and more protracted declines in commodity production. However, there are upside risk factors such as stronger-than-expected tourism activity, a stronger recovery from the E&E
downcycle, and faster implementation of existing and new investment projects.
Headline and core inflation to remain moderate for the remainder of 2023 As expected, both headline and core inflation have been declining throughout the year, mainly due to milder cost conditions. This would likely continue for the remainder of 2023. Overall, headline inflation is expected to average between 2.5% and 3% in 2023. Going forward, risks to the inflation outlook remain highly subject to changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.
