A general view of Kuala Lumpur taken from KL Tower. — AFP photo
KUCHING (Feb 16): The Malaysian economy expanded by 3 per cent in the fourth quarter of last year (3Q 2023: 3.3 per cent; 2Q 2023: 2.9 per cent) while household spending remained supported by improving labour market conditions and easing cost pressures, said Bank Negara Malaysia (BNM).
In a statement today, the central bank said the unemployment rate declined to the pre-pandemic level of 3.3 per cent, while the labour force participation rate was at a historic high last year.
Meanwhile, growth in investment activity was underpinned by the progressive realisation of multi-year projects and capacity expansion by firms.
Exports, however, remained subdued due to prolonged weakness in external demand amid stronger imports.
On the supply side, there was a broad-based expansion. The commodities sector grew supported by higher oil and gas production, as well as expansion in the agriculture sector amid improved labour supply.
The services and construction sectors continued to expand, while the manufacturing sector remained soft from continued weakness in the electrical and electronics industry.
In terms of monthly gross domestic product (GDP), December recorded a growth of 1.4 per cent, lower than November (3.8 per cent) and October (3.9 per cent), attributed mainly to the shorter school holiday period during the month and weaker export-oriented manufacturing sector.
On a quarter-on-quarter seasonally-adjusted basis, the economy contracted by 2.1 per cent (3Q 2023: +2.6 per cent).
Overall, the 2023 growth for the Malaysian economy normalised to 3.7 per cent, following a strong growth registered in the previous year (2022: 8.7 per cent).
Growth moderated amid a challenging external environment due mainly to slower global trade, the global tech downcycle, geopolitical tensions, and tighter monetary policies.
On the domestic front, despite the lapse of large policy support provided as the economy started to open up in 2022, the continued recovery in economic activity and labour market conditions supported growth last year.
In addition, the solid growth performance of the economy was reinforced by a resilient external position.
Despite the challenging external environment, the current account surplus for last year was sustained at 1.2 per cent of GDP, supported by a diversified export structure across market and product.
The strength in external position is also reflected in the external debt, which declined to 68.2 per cent of GDP last year (3Q 2023: 69 per cent), and a higher net international investment position at 6.6 per cent of GDP last year (3Q 2023: 5.2 per cent).
BNM said importantly, external debt remains manageable given the favourable maturity and currency profiles.
One-third of external debt is denominated in ringgit, limiting currency risk, while around 70 per cent of debt have medium- and longer-term tenures.
Foreign currency borrowings are also subject to BNM’s prudential requirements and continue to consist mainly of concessionary intragroup loans.
Headline inflation continued to decline to 1.6 per cent during the quarter (3Q 2023: 2 per cent).
The downward trend was contributed by the moderation in fresh food inflation (4Q 2023: 0.5 per cent; 3Q 2023: 1.9 per cent) and core inflation (4Q 2023: 2 per cent; 3Q 2023: 2.5 per cent).
The lower core inflation was largely driven by an easing in services sub-segments, including food away from home and repair and maintenance of personal transport.
Inflation pervasiveness continued to trend lower, as the share of Consumer Price Index items recording monthly price increases moderated to 36.3 per cent during the quarter (3Q 2023: 40.8 per cent).
This brought inflation pervasiveness below its fourth quarter long-term average (2011-2019) of 41.7 per cent. For 2023 as a whole, headline inflation declined to 2.5 per cent (2022: 3.3 per cent) while core inflation averaged at 3 per cent (2022: 3 per cent).
Domestic financial markets continued to be driven by evolving financial market expectations over the global monetary policy path. In particular, financial market participants viewed that the US policy rate had already peaked and that the US Federal Reserve will start reducing the policy rate in 2024 amid the ongoing disinflation.
Against this backdrop, the ringgit appreciated by 2.1 per cent against the US dollar in the fourth quarter of last year, in line with regional currencies following a broad-based depreciation in the US dollar.
BNM said Malaysia’s external position also remains supportive of inflows. The central banks said it will continue to ensure sufficient liquidity to support the orderly functioning of the domestic foreign exchange market.
Credit to the private non-financial sector expanded by 4.7 per cent (3Q 2023: 4.3 per cent) driven by higher growth in business loans (3.6 per cent; 3Q 2023: 1.9 per cent) while outstanding corporate bonds growth moderated to 4.2 per cent (3Q 2023: 5 per cent).
The higher business loan growth was driven mainly by higher growth in working capital loans. Of note, BNM said SME loan growth remained forthcoming (4Q 2023: 8.2 per cent; 3Q 2023: 7 per cent).
For households, outstanding loan growth remained steady at 5.6 per cent (3Q 2023: 5.4 per cent), reflecting sustained growth across key purposes.
BNM said growth in 2024 will be driven by resilient domestic expenditure and improvement in external demand.
On the external front, the International Monetary Fund (IMF) is projecting a rebound in global trade growth from 0.4 per cent last year to 3.3 per cent this year.
Together with the tech upcycle, the stronger external demand and continued improvement in the tourism sector will provide support to Malaysia’s exports.
People throng Pavilion Kuala Lumpur on May 3, 2022. — Malay Mail photo
On the domestic front, household spending will be supported by continued employment and wage growth. Investment activity will be underpinned by further progress of multi-year projects, by both the private and public sectors, as well as the implementation of catalytic initiatives under the various national master plans.
Improvement in tourist arrivals and spending are expected to continue, BNM said and the growth outlook remains subject to downside risks stemming from weaker-than-expected external demand and larger declines in commodity production.
Nonetheless, there are upside risks to growth emanating from greater spillover from the tech upcycle, stronger-than-expected tourism activity and faster implementation of existing and new projects.
Both headline and core inflation have moderated due mainly to lower cost pressures amid stabilising demand conditions.
In 2024, inflation is expected to remain modest, broadly reflecting stable cost and demand conditions. However, inflation outlook remains highly subject to changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.
BNM will publish its Annual Report 2023, the Economic and Monetary Review 2023, and the Financial Stability Review for the Second Half of 2023 on March 20.
