Malaysia’s economy grew by 2.9% in Q2 2023, driven by strong domestic demand despite external challenges. Inflation moderated, and exchange rates fluctuated due to global factors. The outlook projects moderate growth, buoyed by robust domestic demand and ongoing recovery in tourism.
18 August 2023 – The Malaysian economy demonstrated its resilience during the second quarter of 2023, expanding at a moderate rate of 2.9%. Despite facing headwinds from slower external demand, the nation’s economic growth was primarily driven by robust domestic demand, buoyed by strong private consumption and investment.
The latest economic data released by the Malaysian authorities indicates that while the second quarter growth was lower than the impressive 5.6% recorded in the previous quarter, it maintained a steady trajectory. Domestic demand remained the anchor of growth, spurred by healthy private consumption and investment activities. A growing employment landscape and rising wages bolstered household spending, while government investments in capacity expansion and long-term projects contributed to investment momentum.
The report also highlighted the partial offset of slower goods export growth by the ongoing recovery in inbound tourism. However, the growth rate was affected by the high base effect of the second quarter of 2022, characterized by strong growth due to reopening effects and policy measures.
Despite challenges, the services and construction sectors remained pivotal to sustaining economic growth, while adverse weather conditions and plant maintenance influenced production in agriculture and mining. Notably, the quarter-on-quarter seasonally-adjusted growth stood at 1.5%, a marked improvement from the previous quarter.
Inflation trends were another notable aspect of the quarter. Headline inflation moderated to 2.8%, driven by declines in both non-core and core inflation. Core inflation, although lower, remained elevated compared to the long-term average, largely due to specific services. The quarter also saw a reduction in inflation pervasiveness, with fewer Consumer Price Index items recording monthly price increases.
Exchange rate movements were influenced by global factors, with the ringgit depreciating by 5.8% in the second quarter of 2023. However, the third quarter saw a 1.1% appreciation due to shifting expectations regarding US monetary policy.
Looking ahead, Malaysia’s economic growth is expected to remain moderate due to external challenges, projected to land towards the lower end of the 4.0% to 5.0% range for 2023. Strong domestic demand, resilient employment, and the execution of long-term projects are poised to drive growth. While downside risks persist from global economic uncertainties, upside potential exists through enhanced tourism and expedited project implementation.
For the latter half of 2023, both headline and core inflation are predicted to trend lower, influenced by past year’s higher base figures. Yet, risks remain dependent on domestic policy shifts, global commodity prices, and financial market dynamics.
