Malaysia’s economy grows slower that estimated on exports

Malaysia’s economy grew slightly slower than expected last year as tepid global demand hurt its exports and manufacturing activity.

Gross domestic product expanded 3.7% last year, compared with the 3.8% advance estimate and median forecast in a Bloomberg survey of analysts. For the fourth quarter, the economy grew 3% year-on-year, Bank Negara Malaysia said in an emailed statement on Friday, below the 3.4% advance projection released last month.

On a sequential basis, the economy contracted 2.1% in the final quarter of 2023 from the previous three months.

“Growth moderated amid a challenging external environment,” the central bank said in a statement. “This was due mainly to slower global trade, the global tech downcycle, geopolitical tensions and tighter monetary policies.”

Faltering growth in China, Malaysia’s biggest trading partner, has weighed on its exports and economy. Other Southeast Asian countries were hit too. Singapore narrowly missed its GDP target for 2023 while Indonesia and the Philippines also saw growth moderating last year.

Once Asia’s fastest-growing economy, Malaysia has been grappling with falling exports since March. That contributed to the manufacturing sector expanding just 0.7% last year, compared with the 8.1% growth seen in 2022.

The downward revision to Malaysia’s GDP numbers was “disappointing,” said Lavanya Venkateswaran, senior Asean economist at Oversea-Chinese Banking Corp. in Singapore. 

The impact from global pressures were “deep and prolonged,” offsetting the resilience in domestic demand, she added.

Still, the bar for policymakers to lower borrowing costs this year is high, according to Lavanya, who expects the central bank to remain on hold in 2024. 

“BNM will consider easing only if there are persistent signs of weaker domestic demand conditions,” she said. The central bank has kept the overnight policy rate at 3% since last May.

Going forward, the economy is set to improve on resilient domestic spending and a potential recovery in external demand, the central bank said. A rebound in the technology industry, stronger global demand and continued improvement in the tourism sector will support Malaysia’s shipments, the central bank added.

Malaysia’s ringgit held a 0.1% gain, trading at 4.7785 against the dollar as of 1:34 pm local time.

Still, there are risks on the horizon. Officials are counting on private consumption to continue as a key growth driver this year. But Malaysia’s plans to limit fuel subsidies only to the needy may increase price pressures and prompt top- to middle-income earners to re-prioritize their spending, according to analysts at AmBank Bhd. ahead of Friday’s data. 

Inflation is expected to remain modest in 2024, but that outlook remains highly subject to changes to domestic policy on subsidies and price controls, the central bank said. The government expects inflation to average 2.1% to 3.6% this year.

--With assistance from Tomoko Sato, Netty Ismail and Marcus Wong.