Malaysia's economy grows by 3.3% in Q3 2023

This growth was an improvement from Q2 2023, which stood at 2.9%; and was 'anchored by resilient domestic demand', according to Bank Negara Malaysia.

Malaysia's economy recorded a growth of 3.3% in Q3 2023, up from 2.9% recorded in Q2, according to Bank Negara Malaysia's (BNM) economic and financial update. 

This growth, BNM added, was anchored by resilient domestic demand. At the same time, 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 products and lower production of refined petroleum products.

As shared in the update, taking on a quarter-on-quarter seasonal adjustment, the country's economy grew by 2.6% in Q3, an increase from 1.5% recorded in the previous quarter. Overall, the economy expanded by 3.9% in the first three quarters of 2023.

BNM noted:

• Headline inflation continued to moderate to 2% (Q2 2023: 2.8%) during the quarter, 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% (Q2 2023: 3.4%) but remained above its long-term average (2011-2019 average: 2%). This 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 (Q2 2023: 42.7%).

The update also covered details on domestic financial conditions in the quarter, which BNM said were "driven mainly by evolving expectations over the global monetary policy path."

It explained: "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.

Commenting on the above, looking ahead, BNM Governor Datuk Abdul Rasheed Ghaffour said: "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."

Further updates are as follows:

• Improvements in tourist arrivals and spending are expected to continue in 2024. 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.

Overall, headline inflation is expected to average between 2.5% and 3% in 2023, and, 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.

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