PublicInvest Research

4Q23 GDP - Resilience Amid Global Uncertainty

Publish date: Mon, 19 Feb 2024, 12:48 PM
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Malaysia’s recovery momentum continued with favourable expansion in domestic demand, sustained improvement in employment and income conditions as well as policy support, contributing to a gross domestic product (GDP) growth of +3.0% YoY in 4Q23 (3Q23: +3.3%), slightly below the market expectation of 3.4%.

In 2023, the Malaysian economy experienced a normalization in growth to 3.7%, following a robust expansion in the previous year at 8.7%. This moderation was attributed to a challenging external environment, marked by slower global trade, a downturn in the global tech sector, geopolitical tensions, and tighter monetary policies, as highlighted by Bank Negara Malaysia (BNM). Despite the tapering of significant policy support as the economy reopened in 2022, continued recovery in economic activity and labour market conditions supported growth in 2023. Moreover, the economy's solid performance was underpinned by its resilient external position. However, escalating geopolitical tensions, inflationary pressures, and tightening financial market conditions added further strain. Despite these external challenges, the domestic economy is expected to be supported by ongoing recovery in the labour market and the realization of multi-year investment projects.

Looking ahead to this year, amid a challenging global context, BNM anticipates the Malaysian economy to trend upward, with initiatives outlined in Budget 2024 expected to provide additional impetus to economic activity. Nonetheless, growth prospects remain susceptible to downside risks, primarily linked to weaker-than-expected external demand and declines in commodity production.

On the demand side, household spending was bolstered by improving labour market conditions and alleviating cost pressures in 2023. The unemployment rate retreated to pre-pandemic levels at 3.3%, while the labour force participation rate reached a historic high. Investment activity saw growth driven by the progressive realization of multi-year projects and capacity expansions by firms. However, exports remained subdued due to prolonged weakness in external demand despite stronger imports.

On the supply side, there was a widespread expansion across sectors. The commodities sector experienced growth, supported by increased oil and gas production and expansion in the agriculture sector with improved labour supply. The services and construction sectors continued their expansion trajectory. However, the manufacturing sector remained subdued, primarily due to persistent weakness in the electrical and electronics industry.

On a QoQ and seasonally adjusted basis, Malaysia’s GDP shrank by 2.1% in 4Q23, as compared to +2.6% in 3Q23. Private consumption growth contracted further by 3.0% in 4Q23, while public consumption growth increased marginally by 0.6% QoQ. Moreover, according to the Department of Statistics (DOSM), on a monthly basis, the country’s real GDP expanded by 3.9% YoY in October, followed by 3.8% in November and 1.4% in December, primarily attributed to the shorter school holiday period during the month and a weakened export-oriented manufacturing sector.


The Services sector, which accounted for 59.3% of GDP in 4Q23, recorded a growth of +4.2% YoY (3Q23: +5.0%). The favourable growth performance was attributed to ongoing recovery of tourism activities weighed by contraction in finance and insurance subsector. The additional support from policy assistance, as well as improved labour market.

Similarly, construction activity rose by 3.6% YoY in 4Q23 (7.2% in 3Q23). BNM noted that the expansion was firmly supported by further expansion in civil engineering subsector weighed by weak non-residential activities.

Additionally, growth in the agriculture sector rose further by 1.9% YoY in 4Q23, from 0.8% in 3Q23, driven by higher oil palm output amid easing labour shortages.

Manufacturing output (4Q23: -0.3% YoY, 3Q23: -0.1%) was dragged down by further weakness in E&E amid tech downcycle, offsetting resilient growth in domestic-oriented clusters.

Nonetheless, the mining sector improved and grew positively at 3.8% YoY in 4Q23 (-0.1% in 3Q23), supported by improvement in natural gas and oil production.


The growth in private expenditure sustained positive growth amid improving labour market conditions as well as higher employment, continued expansion in wages and policy measures. Total consumption grew at a slightly higher pace by 4.9% YoY in 4Q23 (4.8% in 3Q23), while growth in total investment rose by 6.4% YoY in 4Q23 (5.1% in 3Q23), as capital spending by both private and public sectors remained positive.

Growth in private consumption rose positively at 4.2% YoY in 4Q23 (4.6% in 3Q23), supported by improvement in both spending on necessities and discretionary by households. Furthermore, policy initiatives such as the continued welfare assistance programme, as well as ongoing consumption subsidies on selected goods and services also supported growth in private consumption, while minimising the impact of rising cost of living. Growth in public consumption rose further to +7.3% YoY in 4Q23 (+5.8% in 3Q23), due to higher supplies and services spending by the Government.

Growth in public investment rose significantly by 11.3% YoY in 4Q23 (7.5% in 3Q23), driven by higher capital expenditure by government and public corporations. We believe that as the government continues to prioritise investments with high multiplier impact to the economy, development expenditure will continue to be channelled mainly toward projects which promote sustainable development, raise people’s standard of living, accelerate technology adoption and innovation as well as improve transport infrastructure, aligned with the Twelfth Malaysia Plan (12MP)’s objectives. Similarly, growth in private investment sustained at 4.0% YoY in 4Q23, as compared to 4.5% in 3Q23, supported by continued capacity expansion by firms and further progress in ongoing projects. Moving forward, we anticipate that the continuation of transportation-related projects, such as the CDR, East Coast Rail Link (ECRL), and Rapid Transit System Link, along with an accelerated effort to renovate dilapidated schools and clinics in rural areas, will drive the momentum of public investment growth.

On the external front, growth in Malaysia’s real exports of goods and services plummeted to -6.3% YoY in 4Q23 (-12.0% in 3Q23), influenced by the contraction in exports of goods and services. Growth in real imports of goods and services also declined by 2.9% YoY in 4Q23 (-11.1% in 3Q23) due to lethargic performance in the import of goods. In 2023, both exports and imports experienced a decline of 7.9% and 7.6%, respectively, compared to a sharper decline of 14.5% for exports and 15.9% for imports in the preceding year of 2022.


BNM has reported a sustained moderation in both headline and core inflation during 4Q23, primarily attributed to reduced cost pressures amid stabilising demand conditions. Notably, 2023 witnessed both headline and core inflation aligning with expectations at 2.5% and 3.0%, respectively. BNM anticipates a continuation of modest inflation in 2024, reflecting overall stability in cost and demand dynamics. However, the inflation outlook remains susceptible to shifts in domestic policies related to subsidies and price controls, along with fluctuations in global commodity prices and financial market developments. The impending review of price controls and subsidies by the Government in 2024 adds an element of uncertainty to the trajectory of inflation and demand conditions.

Our projection suggests that the inflation trajectory for this year is poised for an ascent to 3.0%. This projection depends on detailed information and a timeline regarding measures outlined in Budget 2024, especially concerning subsidy rationalisation and potential increments in indirect taxes. The Government's inclusive inflation forecast for 2024, ranging from 2.1% to 3.6%, reinforces the view that the Budget is a dynamic fiscal blueprint undergoing continuous refinement. Additionally, the domestic inflation outlook is subject to determinants such as increased cash aids, regional trade restrictions, geopolitical tensions, and expectations of prolonged higher global interest rates, potentially leading to currency depreciation amid tighter global financial conditions.

As guided earlier, Budget 2024 signals the government's commitment to a phased rationalisation of fuel subsidies, particularly for diesel, aimed at addressing perceived inefficiencies. This strategic move is substantiated by data revealing a substantial 40% surge in subsidised diesel sales from 2019 to the present, juxtaposed with a modest growth of less than 3% in the number of diesel vehicles. Noteworthy is the prevailing fixed price of subsidised diesel at RM2.15/litre, sharply contrasting with the market rate of RM3.75/litre (as stipulated in Budget 2024 disclosed in October 2023). This pricing misalignment results in a government subsidy of RM1.60/litre, aggregating to an approximate total of RM1.5bn.

Given the adjustment of the OPR to pre-pandemic levels, we believe that the OPR will hold steady at 3.00% through 2024. BNM underscores that the existing OPR level aligns with a supportive monetary policy stance for the economy, consistent with the current evaluation of inflation and growth prospects.


Looking ahead, given the intricate global milieu, official authorities forecast the domestic economy to grow between 4% and 5% in 2024. The anticipated growth trajectory is expected to rely on sustained domestic demand, driven by improving employment and income conditions, especially in sectors oriented toward the domestic market. Improvements in tourist arrivals and spending are expected to continue. Malaysia is projected to achieve 27.3 million tourist arrivals this year, mostly driven by the government’s charter flight matching grant incentive, Visa Liberalisation programme and increasing tourism promotion activities abroad. Furthermore, investment will receive backing from ongoing multi-year infrastructure projects and strategic initiatives outlined in Budget 2024, collectively driving economic activity forward.

The outlook appears promising as the global economy braces for potential uncertainties, likely mitigated by Malaysia's implementation of strategic initiatives such as the slightly expansionary Budget 2024, National Energy Transition Roadmap (NETR), New Industrial Masterplan 2030 (NIMP 2030), and the Mid-Term Review of 12th Malaysian Plan (12MP MTR), all aligned with the MADANI Economic Framework. This alignment is expected to elevate Malaysia's real GDP growth to +4.7% in 2024, a revision from our earlier projection of +4.5%, as well as supported by robust domestic demand, continued Foreign Direct Investment (FDI) inflows, sustained and prospective investments, and a resurgence in electronics exports amid tech cycle recuperation.

BNM has cautioned that growth prospects face vulnerability to downside risks, primarily tied to weaker external demand and larger declines in commodity production. Projections indicate a slower global economic growth trajectory in 2024, with the effects of tight monetary policies expected to intensify in the coming quarters before gradually easing in the latter half of 2024. Malaysia's significant integration with the global economy and financial markets exposes the nation to considerable risks from a prolonged real estate slowdown in China, especially as the post-pandemic rebound in China recedes more swiftly than anticipated. Nevertheless, the IMF forecasts a rebound in global trade growth from 0.4% in 2023 to 3.3% in 2024. This, coupled with the tech upcycle and ongoing improvements in the tourism sector, will support Malaysia’s exports.

Source: PublicInvest Research - 19 Feb 2024

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