A small and open economy like Malaysia is sensitive to global macroeconomic challenges. With trade valued at 141% of national gross domestic product (GDP), Malaysia relies heavily on external demand, especially from its top trading partners such as China, the United States and Singapore.
The three countries contributed over 40% of Malaysian exports value in the first seven months of 2023. Malaysia is so intertwined with the global manufacturing landscape that one out of five chips imported by the United States in February 2023 came from Malaysia.
These countries (China, U.S, Singapore) are also the top investors for Malaysia. In 2022, the United States and Singapore contributed nearly 66% of total net foreign direct investment flows into the country.
Global economic growth has turned modest, with the world’s second largest economy – China – recording lower than expected growth. Its consumer spending, factory production and investment in long-term assets all slowed further in July from a year ago, according to the country’s National Bureau of Statistics.
Meanwhile, most countries in South-East Asia posted continued decline in exports, reflecting weaker external demand amid global technology down-cycle. Singapore, for example, saw its key exports – non-oil domestic exports – fall for the 10th straight month in July by 20.2%, dragged by weakness in both electronics and non-electronics exports.
As a result of the challenges, Malaysia’s GDP only managed to grow by 2.9% year-on-year (y-o-y) in 2Q23. This is below the market prediction of 3.3%. In comparison, the economy had grown by 5.6% y-o-y in 1Q23.
Economic growth was seen moderating for a third consecutive quarter after hitting 14.2% in 3Q22. The high base effect from 2022 and the 3.7% contraction in net exports also dragged down national growth in 2Q23.
Bank Negara clarified that the GDP growth in 2Q23 would have been recorded at 3.3% – in line with market prediction – had it not been for the “synchronised commodity-related factors”. The moderate growth in 2Q23 was partly driven by several temporary factors, including plant maintenance in the mining sector, hot weather affecting agricultural output, as well as high base effects from the economic reopening and policy measures in the second quarter of 2022.
Private consumption, which grew by 4.3% y-o-y in 2Q23, was underpinned by firm labour market conditions. Private investments grew stronger by 5.1% y-o-y, supported by further progress in construction projects and continued capacity expansion.
Sector-wise, services expanded at a slower pace of 4.7% y-o-y, compared to 7.3% in 1Q23. This was due to a moderation in consumer- and business-related services. The construction sector saw a growth of 6.2% y-o-y amid continued progress of large infrastructure projects and support from higher special trade activities. The manufacturing sector recorded a flattish growth of 0.1% y-o-y in 2Q23, down from 3.2% in 1Q23. This was caused by weaker electrical and electronics production as well as lower refined petroleum production amid a decline in mining output.
So, in all likelihood, we are only be growing by 3.5% to 4.0% for 2023. And 2024 is not expected to be anything higher. Why? All the major economies are expected to grow lower or remain flattish. That’s the World Bank’s forecast. It is incumbent upon the PM and the Economy Minister to devise steps for higher private investments and consumption to offset the decline in trade-related expansion.
Reference:
M’sia to remain resilient amid global uncertainties, Ganeshwaran Kana, The Star, 19 August 2023
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