Executive Summary

Growth improved in 3Q2023 – Based on final estimates, Malaysia’s economy grew by 3.3%.

Our take

Final reading of 3Q2023 GDP at 3.3%, confirming the advanced estimates number – Based on the official final reading, Malaysia's economy grew by 3.3% y/y in the 3Q2023 which confirms the advance pace released last month, and also confirms the stronger quarterly number vis-à-vis 2Q2023 growth of 2.9%.

Growth view for 2024 – The economic growth forecast for Malaysia remains at 4.0% for 2023 and is expected to pick up to 4.5% in 2024. The weak export sector is anticipated to recover in 2024 due to easing inflationary pressures in major economies. On the domestic front, measures announced in Budget 2024, particularly those aimed at boosting consumption, are anticipated to support economic growth. However, the impending subsidy rationalisation, which includes food and fuel in 2024, may lead to changes in consumer spending priorities.

Final reading for 3Q2023 GDP growth at 3.3%, confirming the advance estimates number

Based on the final official reading, Malaysia's economy grew by 3.3% y/y in 3Q2023 which confirms the advanced reading released last month of same quantum. It also confirms the healthier growth vis-à-vis 2Q2023 growth of 2.9% y/y and beating market median forecast of 3.2% (forecast range: 1.7% - 3.5%) provided by 14 economists surveyed by Bloomberg. This brings the year-to-date growth to 3.9%. On a quarter-on-quarter basis, the economy rebounded to 5.2% q/q growth from a decline of 0.8% q/q in the previous quarter.

Looking from the supply side, the performance was primarily driven by growth in the Services sector at 5.0% y/y (2Q2023: 4.7%), propelled by healthy performance from Wholesale & Retail Trade, Transportation and Storage, and Business Services. In addition, further expansion in the Construction sector, where it increased by 7.2% y/y (2Q2023: 6.2%), alongside improvement in the Agriculture sector at 0.8% y/y growth (2Q2023: -1.0%), helped support the local economic growth during the quarter under review. The outperformance offset the decline in both the Mining & Quarrying and Manufacturing sectors, which contracted during the quarter by 0.1% y/y on weak demand in electrical and electronic products (E&E) and lower production of refined petroleum products.

On the demand side, growth was driven by domestic resiliency rather than external trade. Private Final Consumption Expenditure (PFCE), expanded faster at 4.6% y/y (2Q2023: 4.3%) supported by household spending on continued growth in employment and wages. This is to go along with larger increase in Government Final Consumption Expenditure at 5.8% y/y (2Q2023: 3.8%), and sustained growth in Gross Fixed Capital Formation at 5.1% y/y (2Q2023: 5.5%). On the flipside, both Exports and Imports contracted by 12.0% y/y and 11.1% y/y, respectively (2Q2023: -9.4% and -9.7%).

Our take on growth

Moving forward, we maintain our view that the economy will grow by 4.0% in 2023 and 4.5% in 2024 with the expectations of continued resiliency in domestic demand. Measures announced in Budget 2024 which we see as consumption-friendly, will provide a boost, including higher allocation via Sumbangan Tunai Rahmah (STR) to RM10 billion. Nonetheless, the impending subsidy rationalisation, involving food and fuel items, in 2024, may cause a form of spending reprioritisation by consumers.

Coupled with exports expected to recover in 2024, given tapering inflationary pressures along major economies, implies that monetary policy tightening among major central banks is at the tail end. Malaysia’s real export is expected to grow by 5.1% in 2024 after contracting in 2023. On the global trade development, the World Trade Organization (WTO) expects global trade to grow by 3.3% in 2024 (2023 E: 0.8%). Sectors that are sensitive to economic cycles are expected to stabilise as the rate hike cycle ends.

Source: AmInvest Research - 20 Nov 2023