[KUALA LUMPUR] Malaysia’s economy expanded at a slower pace of 3 per cent year on year in the fourth quarter due to declining exports, said the central bank on Friday (Feb 16).

The Q4 growth was also lower than the 3.3 per cent recorded in the previous quarter, although it was higher than Q2’s 2.9 per cent.

The latest figure disappointed the market. Economists had projected 3.4 per cent growth in Q4 in a recent Reuters poll, echoing the government’s advance estimates of 3.4 per cent by the Department of Statistics Malaysia in January.

For the full year, gross domestic product (GDP) came in at 3.7 per cent, slower than 8.7 per cent in 2022. The final figure was also lower than the statistics department’s advance estimates of 3.8 per cent.

Bank Negara governor Abdul Rasheed Ghaffour said the country’s exports remained subdued over the quarter due to prolonged weakness in external demand amid strong imports.

In the October-to-December period, Malaysia’s exports declined 6.9 per cent, while imports increased 1.3 per cent. This led to declining trade of 3.2 per cent to RM695.6 billion (S$196 billion). The trade surplus, meanwhile, shrank nearly 46 per cent year on year to RM36.9 billion.

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The central bank governor said household spending remained the key driver of Malaysia’s economy, underpinned by an improved labour market and easing cost pressures.

Even though GDP growth in 2023 fell short of the estimates, economists do not expect this will lead to rate cuts.

Malaysia’s current overnight policy rate has stayed at 3 per cent, after the rate hike of 25 basis points in May last year. 

OCBC senior Asean economist Lavanya Venkateswaran said the central bank will consider rate cuts only if there are persistent signs of weaker domestic demand.

“We do not expect Bank Negara to adjust rates higher in response to the government’s impending adjustment to the fuel-subsidy regime, as the central bank has not reacted to supply side policy changes in the past,” she added.

Although domestic spending remained strong, Bank Muamalat chief economist Mohd Afzanizam Abdul Rashid pointed out that the growth in consumer spending, which forms 61 per cent of the country’s total GDP, decelerated slightly, from 4.6 per cent in Q3 to 4.2 per cent in Q4.

“The improvement in the labour market would allow households to continue spending, but consumers have become more cautious in their spending habits in view of the rising costs of living,” he added.

Malaysia’s headline and core inflation continued to decline to 1.6 per cent and 2 per cent, respectively, during the quarter, thanks to the moderation in price increases of food.

Abdul Rasheed said the inflation outlook remained highly subject to changes in domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.

He also expects Malaysia’s economy to perform better this year, driven by resilient domestic expenditure, robust tourism activities and the recovery in external demand. He noted, however, that the downside risks would be the weaker-than-expected external demand and decline in commodity production.

OCBC expects the country’s GDP to grow 4.2 per cent this year, underscoring a cautiously optimistic growth outlook. 

On Malaysia’s currency performance, Dr Mohd Afzanizam expects the ringgit downtrend to continue in the near term due to higher demand for the US dollar.

Abdul Rasheed expects the ringgit to appreciate this year as “the US policy rate has already peaked, and the Fed will start reducing the policy rate this year amid ongoing disinflation”.

As at 5 pm on Friday, the ringgit traded at RM4.78 against the US dollar, 4 per cent lower than RM4.59 on Jan 1. In 2023, the ringgit depreciated by 4.2 per cent against the greenback.