Malaysia’s economy likely expanded in Q4 but outlook cloudy

5:25 am Friday, January 19th, 2024

By Rozanna Latiff

KUALA LUMPUR (Reuters) -Malaysia’s economy in the fourth quarter of 2023 likely expanded 3.4% from a year earlier, marginally faster than the previous three-month period, though a slump in exports and easing activity signaled weakening momentum.

While all major sectors registered an expansion in the October-December period, growth in construction slowed to 2.5% from a year earlier, from 7.2% in the previous quarter, and manufacturing growth was nearly stagnant at 0.1%, official advance estimates released by the Statistics Department showed on Friday.

In the third quarter of 2023, gross domestic product (GDP) expanded 3.3% as buoyant domestic spending offset weak external demand. Malaysia’s exports, which have been in decline since March, contracted 8% in 2023, according to trade data released separately on Friday.

The department began releasing preliminary estimates on quarterly economic performance in October last year, citing demand for more timely statistics and to comply with international best practices.

Malaysia’s full-year economic growth is expected to come in at 3.8% in 2023, the department said, below the government’s projection of a 4% expansion and a sharp drop from a 22-year high of 8.7% in 2022.

Malaysia’s growth outlook was expected to remain cloudy in coming months, analysts said, flagging risks including a possible spike in inflation following planned subsidy cuts this year.

“We think the economy is set to remain weak in the near term as elevated interest rates, a cooling labour market, soft foreign demand and subdued commodity prices weigh on activity,” Capital Economics Emerging Asia Economist Shivaan Tandon said in a note.

Alex Holmes of Oxford Economics said the government’s forecast of 4%-5% growth in 2024 “looks difficult to reach”, amid easing domestic consumption and subdued global growth.

The data release comes ahead of Bank Negara Malaysia’s monetary policy meeting on Jan. 24. The central bank is likely to keep its benchmark interest rate unchanged for the fourth straight time, according to all 28 economists polled by Reuters.

Final fourth quarter and 2023 GDP figures are expected to be released on Feb. 16.

(Reporting by Rozanna Latiff; Editing by Kanupriya Kapoor and Christian Schmollinger)