Malaysia’s 2023 GDP growth estimated at 3.8%, missing forecast due to weak exports

[KUALA LUMPUR] Malaysia’s economic growth in 2023 is estimated to have expanded at a slower-than-expected pace due to lower exports.

The country’s gross domestic product (GDP) is projected to have grown by 3.4 per cent in the fourth quarter last year, with full-year growth expected to be 3.8 per cent, according to advance estimates released by the Department of Statistics Malaysia (DOSM) on Friday (Jan 19).

The advance quarterly GDP figures by DOSM, which were compiled based on partial information and surveys, aimed to provide early indications of economic performance.

The estimation of full-year growth falls below the central bank’s earlier projection of 4 per cent. Bank Negara Malaysia will release the Q4 and full-year GDP figures on Feb 16.

For the first nine months of 2023, Malaysia’s economic growth moderated to 3.9 per cent, compared with 9.2 per cent during the same period in 2022.

Economists expect Malaysia to achieve higher growth in 2024, supported by a few catalysts such as expected lower global interest rates and the rolling out of multi-year infrastructure projects in the country.

This echoed Bank Negara’s earlier projection of a slightly better growth range of between 4 and 5 per cent in 2024.

UOB senior economist Julia Goh said that the forecast of 4.6 per cent growth for this year remained unchanged on the back of a global soft-landing scenario and the US Federal Reserve’s move to reduce interest rates from mid-2024.

“There are signs of a regional trade rebound, albeit moderately, which should catalyse a recovery for Malaysia’s external sector this year,” she added.

DBS economist Chua Han Teng said that private consumption and investment will continue to support the country’s economy this year, driven by a resilient labour market and well-progressed infrastructure projects.

“The export-oriented manufacturing sector is set to recover, as the global electronics cycle improves gradually, after 2023’s deep downturn,” he added. DBS expects Malaysia’s economy to recover modestly to 4.8 per cent this year.

A report co-authored by Standard Chartered economists Edward Lee and Jonathan Koh noted that the public sector in Malaysia may lead investment growth with the ongoing implementation of key infrastructure projects, including the East Coast Rail Link and MyDigital 5G projects.

“Private-sector investment may be soft in the first half of 2024 on higher funding cost,” Lee and Koh said, adding that the three-month Kuala Lumpur interbank offer rate has risen 11 basis points since the third quarter last year amid tightening liquidity.

Foreign direct investment into Malaysia fell 49 per cent year on year in the first nine months of 2023. “Higher global interest rates may continue to weigh on foreign direct investment flows, especially in the first half of this year,” Lee and Koh pointed out.

On a quarterly basis, Malaysia’s economy was estimated to moderate to 3.5 per cent in Q4 2023, from 5.2 per cent in the quarter before.

DOSM said that all economic sectors expanded in Q4 last year, spearheaded by the services sector, which booked year-on-year growth of 4.7 per cent.

A slowdown in construction and stagnant manufacturing activity, however, weighed on the economy. DOSM chief statistician Uzir Mahidin said that the modest economic performance in 2023 was influenced by declining exports due to weak global demand and low commodity prices.

In a separate announcement, DOSM said that the country’s exports fell 10 per cent year on year to RM118.5 billion (S$33.7 billion) in December 2023. The contraction was steeper than November’s 5.9 per cent decline and exceeded the 4 per cent decline forecast by 17 economists in a recent Reuters poll.

Exports to China, which accounted for nearly 15 per cent of total exports, fell 1.5 per cent year on year to RM17.7 billion in December 2023. Shipments to Singapore declined nearly 25 per cent to RM15.6 billion. Exports to the Republic contributed 13.2 per cent to Malaysia’s total figure.

Imports, however, increased 2.9 per cent to RM106.7 billion.

Imports from China, representing 21.7 per cent of total imports, declined 3.5 per cent to RM23.2 billion. Imports from Singapore, about 11.2 per cent of Malaysia’s imports, increased 11.8 per cent to RM11.9 billion.

Total trade in December 2023 fell 4.3 per cent, to RM225.1 billion.

For the full year, Malaysia’s exports and imports fell 8 per cent and 6.4 per cent, respectively, year on year. Total trade declined by 7.3 per cent, and the trade surplus slipped by 16.4 per cent.