Malaysia pulls in 2.9 pct modest growth for Q2 amid rising domestic demand, while exports ease

Bank Negara Governor Datuk Abdul Rasheed Ghaffour (right) with Chief Statistician Dato’ Sri Dr. Mohd Uzir Mahidin.

KUALA LUMPUR, Aug 18: Malaysia recorded a modest 2.9 percent growth in the second quarter of 2023, supported by an improving labour market, continued rise in domestic demand and increased tourism activities, said Bank Negara Malaysia Governor Datuk Abdul Rasheed Ghaffour at a press conference here today.

He also expects growth for the year to be close to the lower-end of the central bank’s forecast range of 4 to 5 percent, anchored by domestic demand.

Global developments are also expected to continue to weigh in on Malaysia’s performance in the months ahead with an easing global demand among the challenges.

“In the second quarter of 2023, global growth was modest. While the labour market remained resilient, growth continued to be weighed by higher interest rates and elevated inflation. China’s growth came in below expectation, despite benefiting from low base from the lockdown back in 2Q 2022.

“Global headline inflation continued to moderate, in line with lower commodity prices. Meanwhile, core inflation moderated at a much slower pace given the resilient labour market,” a statement issued by the central bank further said, citing Abdul Rasheed.

“Let me reiterate that the moderate growth in second quarter of 2023 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 second quarter last year.

“Based on our estimation, had it not been for the synchronised commodity-related factors, growth could have been 40 basis points higher at 3.3%.

“Going forward, growth will be supported by four factors. First, continued recovery in the labour market; second, implementation of new and existing investment projects; third, higher tourism activity; and fourth, dissipation of plant maintenance activities in the mining sector.

“Nevertheless, in our baseline forecast, the weak external demand is expected to weigh on near-term growth. The economy is facing downside risks stemming from weaker-than-expected global growth and a deeper or longer-than-expected technology downcycle. Beyond that, there could be lower-than-
expected commodity production domestically due to stronger impact from El Niño and prolonged plant maintenance.”

While the indicators are mixed, they are generally pointing to continued growth for the Malaysian economy, he said.

These factors include domestic demand, increasing tourism activities, improved labour market and household spending spurred by government incentives, better wages and programmes, investments, new projects, he also said the global semiconductor sales, which have been declining thus far, were showing tentative signs of bottoming out with a positive growth projected by the World Semiconductor Trade Statistics (WSTS) for 2024.

“Household spending continues to expand, supported by wage growth and ample financial buffers. High-frequency data such as credit card spending and passenger car sales continue to record above pre-pandemic figures,” Abdul Rasheed said.

On the growth in demand during the period reviewed, Malaysia’s Chief Statistician, Dato’ Sri Dr. Mohd Uzir Mahidin said it was supported by both private and public sector expenditures.

“Private consumption growth was underpinned by firm labour market conditions. Spending expanded moderately across both necessities and discretionary items.

“Growth in overall investment improved, driven by capital expenditure on structures, and machinery & equipment (M&E), as well as improved Government’s fixed assets spending.“

On the supply side, growth was driven mainly by the services and construction sectors while the services sector growth moderated across both consumer- and business-related subsectors, he said.

He added that the sector continued to benefit from improving tourism-related spending.

“In fact, this is one of the bright spots during the quarter.”

“For the construction sector, growth remained supported by the continued progress of large infrastructure projects and higher special trade activities.

“On the balance of payments, for the second quarter of 2023, the Malaysian current account recorded a higher surplus of RM9.1 billion, or 2.1% of GDP.”

The Services account deficit narrowed by 12.0 per cent quarter-on-quarter to RM11.3 billion, reflecting mainly further recovery in inbound tourism. In addition, the primary income account registered a lower deficit, mainly due to higher income generated by Malaysians investing abroad. Meanwhile, Secondary
income account deficit contracted from RM5.9 billion in the preceding quarter to RM2.8 billion.

On the financial account, Foreign Direct Investment (FDI) inflows moderated to RM3.1 billion during the quarter. The FDI inflows were supported by higher equity injections, reflecting foreign investors’ continued confidence on business prospects in the country. These investments were channelled mainly into the Services sector, predominantly in Professional, scientific & technical and Financial sub-sector. The FDI were primarily from Singapore, Taiwan and Germany.

In the meantime, Direct Investment Abroad (DIA) outflows expanded to RM8.0 billion as compared to RM1.1 billion in the previous quarter. The outflow was mainly due to higher equity injection and profit retained abroad. The major sectors contributed to the DIA were Services particularly in Financial and
Information & telecommunication sub-sector. The DIA major destinations were to Singapore, Indonesia and Norway.