Malaysia posts fastest economic growth in over a year, outlook clouded

KUALA LUMPUR  -Malaysia’s economy expanded at its fastest pace in more than a year in the third quarter, outrunning the growth rate in many of its Southeast Asian peers, but the central bank said the outlook was clouded by the risk of a global slowdown.

The economy grew by a higher-than-expected 14.2 percent in the third quarter from a low base a year earlier, when COVID-19 containment measures curbed economic activity.

While the central bank sees 2022 growth surpassing government projections, it said a slowdown in quarterly expansion was in line with an expected moderation in growth.

Malaysia’s economy has bounced back rapidly from the COVID-19 pandemic after the government started easing restrictions in April but there are concerns that a slowdown in the world economy could hurt export growth going forward.

“We acknowledge there are still some spots in our economy that have yet to return to pre-pandemic condition,” central bank governor Nor Shamsiah Yunus told a news conference on Friday.

“The moderation in global growth will particularly have an impact on Malaysia’s exports.”

Gross domestic product (GDP) grew at its fastest pace since the second quarter of 2021 in the July-September period. Economists in a Reuters poll had expected GDP to rise 11.7 percent after it increased 8.9 percent in the previous quarter.

The third-quarter jump was driven by a continued expansion in domestic demand, a firm recovery in the labour market, solid exports, and ongoing policy support, said Nor Shamsiah. It surpassed the economic growth of many regional peers, including Indonesia, the Philippines, Singapore and Vietnam.

The GDP data also comes as Malaysia is due to hold national elections this month, with the economy and inflation likely to be at the top of voters’ considerations.

The central bank said it expects GDP to surpass the government’s projection of 6.5 percent-7 percent in 2022, but sees growth slowing to 4 percent-5 percent next year.

Export outlook

Private consumption rose 15.1 percent in the third quarter from a year ago and exports increased 18.7 percent, the central bank said, adding that growth was evident across sectors including services, construction and manufacturing.

Quarter-on-quarter economic growth slowed on a seasonally-adjusted basis to 1.9 percent from 3.5 percent in the previous three-month period.

Capital Economics expected Malaysia’s economic growth “to struggle” over the coming quarters.

“Exports are likely to weaken ahead if, as we expect, commodity prices decline and the global economy enters a recession in 2023,” said its emerging Asia economist Shivaan Tandon.

“Private consumption growth is also likely to be weak owing to the fading boost from domestic reopening, less favourable labour market conditions, high inflation and tighter monetary policy.”

Headline inflation likely peaked at 4.5 percent in the third quarter and is expected to moderate thereafter, but it will remain elevated, the central bank said.

Inflation in Malaysia has been largely contained by record government subsidies and price control measures this year, but upside risks remain, with the central bank delivering its fourth consecutive 25-basis-point rate hike last week.

The rate hikes come as the ringgit has fallen 10.8 percent against the U.S. dollar this year, with the greenback supported by the Federal Reserve’s aggressive monetary tightening.

Nor Shamsiah said the ringgit currency will adjust to reflect Malaysia’s economic fundamentals.

“Malaysia is not in an economic crisis,” she said, adding that the country will not see a recession next year.