MALAYSIA’S GDP saw a stronger growth of 14.2% in the third quarter of 2022 (3Q22) (2Q22: 8.9%), partly driven by strong domestic demand, underpinned by improvements in labour market and income conditions, as well as ongoing policy support.

In a statement today, Bank Negara Malaysia (BNM) said the “stronger growth” came despite base effects from the negative growth in 3Q21.

It said exports remained supported by strong demand for electrical and electronics (E&E) products while the recovery of inbound tourism lent further support to economic activity. By sector, the central bank said the services and manufacturing sectors continued to drive growth.

On a quarter-on-quarter seasonally-adjusted basis, the economy grew by 1.9% (2Q22: 3.5%). Overall, the Malaysian economy expanded by 9.3% in the first three quarters of 2022.

Stronger Expansion In 3Q

The Malaysian economy registered a stronger growth of 14.2% in 3Q22 (2Q22: 8.9%). While there were base effects from the negative growth in 3Q21, growth was also driven by strong domestic demand, underpinned by improvements in labour market and income conditions, as well as ongoing policy support.

Exports remained supported by strong demand for E&E products. The recovery of inbound tourism lent further support to economic activity. By sector, the services and manufacturing sectors continued to drive growth. 

Headline inflation is likely to have peaked for the year at 4.5% during the quarter (2Q22: 2.8%) while core inflation increased further to 3.7% (2Q22: 2.5%).

As expected, the increase in headline inflation was largely driven by the base effect from the discount on electricity bill implemented in 3Q21, as well as sustained increases in core inflation and price-volatile items. The inflationary pressures reflected the confluence of elevated cost pressures, particularly for food-related items and strong demand conditions.

Exchange Rate Developments

The ringgit depreciated by 4.9% against the US dollar in 3Q22 (year-to-date [YTD] until Nov 9, 2022: -11.2%), in line with regional currencies which depreciated by an average of 5.5% (YTD: -9.5%). This reflected the continued strengthening of the US dollar amid further monetary policy tightening by the US Federal Reserve and higher investor risk aversion due to moderating global growth prospects.

Nonetheless, strong domestic growth mitigated further downward external pressures on the ringgit. Moving forward, although domestic financial markets may face the risk of higher volatility, spillovers to domestic financial intermediation are expected to remain contained, supported by Malaysia’s healthy external position and well-capitalised banking system.

The central bank will continue to closely monitor market developments and ensure that adjustments remain orderly to support effective intermediation for the economy.

Financing Conditions

Net financing to the private sector grew by 5.4% (2Q22: 4.9%) supported mainly by higher outstanding loan growth (6.1%; 2Q22: 5.4%), driven by the household segment.

Meanwhile, outstanding corporate bond growth remained sustained at 3.5% (2Q22: 3.4%). Outstanding business loan growth stood at 5%, as the growth in loan repayments outpaced that of loan disbursements. Loan applications remained forthcoming across segments and most loan purposes. For households, outstanding loans grew by 6.2% mostly on account of high growth in loan disbursements for the purchase of houses and cars.

Malaysian Economy Will Be Supported by Firm Domestic Demand

The economy will continue to expand, albeit at a more moderate pace, in 4Q22. The expected slower pace of growth reflects the more challenging global environment as well as absence of base effects. Nevertheless, growth for the whole year of 2022 is expected to remain robust given the strong outturns in the first three quarters of the year.

Looking ahead, the Malaysian economy is expected to expand by 4%-5% in 2023.

BNM Governor Tan Sri Nor Shamsiah Mohd Yunus explained that the Malaysian economy will continue to be supported by firm domestic demand amid continued improvements in the labour market.

“Growth would also benefit from the realisation of large infrastructure projects as well as higher tourist arrivals.

“However, Malaysia’s growth remains susceptible to a weaker-than-expected global growth, higher risk aversion in global financial markets, further escalation of geopolitical conflicts and re-emergence of supply chain disruptions,” she said.

Headline Inflation to Moderate in 4Q22

Headline inflation is expected to moderate in 4Q22, but remain elevated. The base effect from the discount on electricity bill which contributed to higher inflation in 3Q will dissipate in 4Q22.

Overall, headline inflation is expected to average at 3.3% in 2022, while underlying inflation, as measured by core inflation, is expected to stay elevated for the remainder of 2022 given improving demand amid the high-cost environment.

Moving into 2023, headline and core inflation are expected to remain elevated amid both demand and cost pressures, as well as any changes to domestic policy measures.

Additional upward pressures to inflation will remain partly contained by the existing price controls, subsidies, and the remaining spare capacity in the economy.

The balance of risk to the inflation outlook in 2023 is tilted to the upside and continues to be subject to domestic policy measures on subsidies, as well as global commodity price developments arising mainly from the ongoing military conflict in Ukraine and prolonged supply-related disruptions. — TMR