Slower global trade, the global tech downcycle, geopolitical tensions and tighter monetary policies globally had weighed down Malaysia’s gross domestic product (GDP) growth for the fourth quarter of 2023. The quarter’s GDP growth at 3% came in lower than the 3.4% advance projection released last month, and compared with the 3.3% expansion in the preceding quarter, according to Bank Negara.
The quarter’s slower-than-expected growth had also weighed on the whole year’s GDP growth figure, coming in at 3.7% compared to 8.7% in 2022.
The economy was supported by resilient domestic demand that rose 5.2% in the fourth quarter which helped cushion the 3.2% decline in Malaysia’s trade, as exports softened on the back of cooling global demand. Stronger growth of between 4% and 5% in 2024 is expected. The government is also determined to narrow the fiscal deficit to 4.3% in 2024.
Economists are expecting that GDP growth might pick up and improve in 2024, premised upon any change in the above external factors – such as the normalising of demand from a global tech recovery. They also note the resiliency of the local economy in the fourth quarter amid these external weaknesses, namely, the support from domestic demand. However, there are some others warning that external demand will continue to be weak this year and that trading nations should brace for a prolonged slowdown.
The Socio-Economic Research Centre expects a 3.5% to 4% economic growth in the first quarter of 2024, supported by festive spending and stronger tourist arrivals amid preparations for the fasting month of Ramadan. GDP to grow by 4.5% in 2024, aided by a gradual recovery in exports and continued growth in domestic demand. Both fiscal and monetary policies would remain supportive of the economy. Private consumption to grow by 4.3% to 4.6% in 2024 compared with these historical figures of 4.7% in 2023, 11.2% in 2022 and 7.1% per annum from 2011-2019.
The US economy will moderate due to the lag impact of higher interest rates. China’s economy is expected to remain lacklustre in the first half of the year, mainly due to weak property market conditions. Renewed inflation risks and the adverse climate change would weaken the global economic momentum.
The electrical and electronics exports (which account for around 38% of Malaysia’s total exports) would be buoyed by higher demand. The global semiconductor sales are projected to rebound strongly by 13.1% this year versus an estimated decline of 9.4% in 2023 (according to RHB Research). Overall, RHB Research keeps its GDP forecast at 4.6% for 2024.
The Statistics Department notes that Malaysia’s slower GDP growth in 2023 is in tandem with other Asean countries which also reported moderate growth. Singapore’s economic growth slowed to 1.1% in 2023 from 3.8% in 2022, while Indonesia’s growth moderated to 5.1% from 5.3% and the Philippines expanded 5.6% as compared with 7.6% previously.
China expanded further at 5.2% from 3% in 2022 while the United States increased to 2.5% from 1.9% in 2022.
The government agency notes that Malaysia registered a current account surplus of RM253.4mil in the fourth quarter of 2023, supported by the travel component. For 2023, the country’s current account surplus stood at RM22.8bil, as compared to RM55.1bil a year ago, a 40% decline while the financial account recorded a net outflow of RM18.9bil against a net inflow of RM12.4bil in 2022. That’s a negative outflow of about RM6.5 billion. And with negative real interest rate against the US, the Ringgit will be under pressure. So, if we improve our fundamentals---growth rate, inflation, trade balance, positive net inflow of funds, then we will have a positive outlook and a brighter future for the Ringgit.
Reference:
Growth in 2023 to moderate to 3.7%, Daniel Khoo, The Star, 17 February 2024
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