YearStarter 2023: Business – Economy did better than expected, but challenges abound

Private consumption made up 61.5% of GDP in the July-September quarter. – AZLINA ABDULLAH/The Star.

Caught in the headwinds of the pandemic, global conflict and rising costs, the Malaysian economy did better than expected. Challenges and risks abound but there’s room for optimism as things return to normal and consumer spending increases.

The Good

Good performance

Malaysia’s gross domestic product (GDP) growth in the first three quarters consistently exceeded market projections.

Exports reached RM1.42 trillion in the first 11 months.

Direct investments of almost RM194bil were approved for the first nine months of 2022 (9M22), with a quarter of the investments coming from China.

Consumer spending up

Private consumption made up 61.5% of GDP in the July-September quarter.

A good indicator of consumers’ spending appetite would be the sale of vehicles.

After a contraction in 2021, the automotive sector’s vehicle sales - as measured by total industry volume (TIV) - surged by 44.8% year-on-year (y-o-y) to 642,306 units in the first 11 months of 2022..

The Malaysian property market improved in the first half of 2022 (1H22), reflecting the normalising economic activities as the country moved towards endemicity.

Between January and June 2022, more than 188,000 transactions were recorded worth RM84.40bil, an increase of more than 30% in volume and value compared to the same period last year, as all property sectors recorded year-on-year growth.

A good indicator of consumers’ spending appetite would be the sale of vehicles. – Photo: Sam Tham/Star PublicationA good indicator of consumers’ spending appetite would be the sale of vehicles. – Photo: Sam Tham/Star Publication

Better earnings

Across corporate Malaysia, or particularly the listed companies, earnings have been recovering steadily, judging by the July-September results reporting season.

Analysts have called the third quarter as an encouraging and decent quarter for Bursa Malaysia-listed companies.

In 3Q22, the aggregate reported quarterly earnings of the FBM KLCI’s 30 constituents improved 2.5% quarter-on-quarter and 7% y-o-y to RM15.8bil.

The benchmark index of Bursa Malaysia, FBM KLCI, fell by 5.9% year-to-date until Dec 27.

More hired

Against the backdrop of a mixed business landscape, more Malaysians have been hired by the private sector this year.

In October 2022, unemployment fell to the lowest level since the Covid-19 pandemic, reaching 602,000 persons.

The unemployment rate in October remained at 3.6%, about 0.3 percentage point higher than the pre-pandemic level.

The Bad

Core inflation on the rise

In the third quarter of 2022 (3Q22), the Malaysian Institute of Economic Research (MIER) said consumers in Malaysia continue to be cautious in their spending due to the uncertainties in the domestic and global economy.

The country’s headline inflation has been losing steam after peaking in August 2022 at 4.7%.

For comparison, Malaysia’s headline inflation in pre-pandemic December 2019 was only 1%.

Core inflation has been on an uptrend, reaching 4.2% in November 2022 mainly due to the rise in food and transportation costs.

Macroeconomic global challenges

We felt the impact from the Russia-Ukraine war, higher crude oil prices and supply chain issue emanating from China's "zero-Covid" policy.

Once the economic uncertainties reduce and inflationary pressures ease further, economists anticipate Malaysians’ purchasing power to improve again.

Challenges for businesses

Supply chain issues have eased quite significantly but the business sector continues to see challenges on several fronts, such as elevated inflation, as well as higher energy costs via electricity tariffs that are hampering the sector’s recovery and competitiveness.

Earlier in November, the National Recovery Council voiced its concern about the problems faced by the small and medium enterprises (SMEs), which contributed 37.4% to the GDP in 2021.

Mixed year for the ringgit

While the ringgit strengthened against some currencies such as the British pound and Japanese yen, it weakened significantly against the US dollar and the Singapore dollar.

The ringgit breached the 4.70 exchange rate level against the US dollar in early November.

in tandem with the Federal Reserve raising its benchmark interest rates aggressively, hence strengthening the greenback.

However, the ringgit has been appreciating against the US dollar since November, reaching slightly over the 4.40-mark on Dec 27.

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YearStarter 2023


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