Malaysia's economy grows 2.9% in 2Q 2023 as slower external demand weighs

KUALA LUMPUR: Malaysia's economy grew 2.9% in the second quarter of 2023, as external demand slowed against the backdrop of a challenging global environment.

The median estimate of a Reuters poll of economists had pegged the gross domestic product (GDP) growth at 3.3%.

Malaysia's economic growth was seen moderating for a third consecutive quarter after hitting 14.2% in 3Q22. In 4Q22 and 1Q23, the country's GDP expansion was recorded at 7% and 5.6% respectively.

According to Bank Negara, growth during the quarter under review was also affected by the high base effect in 2Q22 when the economy experienced strong growth from the reopening effect and policy measures.

For 2Q23, headline inflation moderated to 2.8%, as compared to 3.6% in 1Q23, with decreases in both non-core and core inflation.

Bank Negara said domestic demand continued to be the driver of growth on the back of private consumption and investment.

"Household spending was supported by further growth in employment and wages.

"Meanwhile, investment activity was underpinned by capacity expansion, progress of multi-year projects and higher fixed asset spending by the government, it said.

The central bank added that continued recovery in inbound tourism partially offset the slower goods export growth.

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On the supply side, the services and construction sectors continued to support growth.

Meanwhile, production in the agriculture and mining sectors were affected by hot weather and plant maintenance.

On outlook, the central bank projects Malaysia's economy to expand closer to the lower end of the 4-5% range in 2023.

It said domestic demand will continue to improve amid improving employment and income as well as the implementation of multi-year projects, while tourist arrivals are expected to continue rising.

“Risks to Malaysia’s growth outlook is subject to downside risk stemming primarily from weaker-than-expected global growth.

"There are, however, upside risk factors such as stronger-than-expected tourism activity and faster implementation of projects," said Bank Negara governor Datuk Abdul Rasheed Ghaffour in a statement.

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He said headline and core inflation are expected to trend lower in the second half of 2023, partly owing to the higher base in the same period in 2022.

"Nonetheless, risks to the inflation outlook are subject to the changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments," he said.