Domestic demand anchored the Malaysian economy in the third quarter of 2023 (3Q23), while global conditions remained weak and volatile. The gross domestic product (GDP) in 3Q23 rose 3.3%, bringing growth in the first nine months of 2023 to 3.9%. This is consistent with the government’s growth forecast of approximately 4% for 2023.
Domestic demand grew by 4.8% in 3Q23, with the resilient labour market and an improving tourism sector lending further support. In terms of supply, the Malaysian economy’s growth was propelled by expansion in the services (5%), agriculture (0.8%) and construction (7.2%) sectors. Offsetting these growth areas were minor contractions in the manufacturing (0.1%), and mining and quarrying (0.1%) sectors. Meanwhile, total trade contracted by 15.7% to RM653.3 billion (US$142.03 billion).
“The dynamic domestic demand reflects the Madani government’s ongoing efforts to restore the vibrancy of the Malaysian economy. The early stages of fiscal reforms undertaken by the government have already generated savings and higher revenue, which are being redistributed to the rakyat directly or indirectly,” says YAB Dato’ Seri Anwar bin Ibrahim, Prime Minister and Finance Minister of Malaysia.
As the domestic market continues to improve, the onset of a recovery in electrical and electronics (E&E) industry is envisaged to provide some reprieve to the export market going forward.
Moving into 2024 and beyond, the government will further implement the economic reforms as mapped out in the Economic Outlook 2024 report (Ekonomi Madani: Memperkasa Rakyat framework), together with key policy documents such as the National Energy Transition Roadmap, New Industrial Master Plan 2030, and 12th Malaysia Plan Mid-Term Review. In this regard, the government has envisaged seven targets to be achieved within the next 10 years. The areas of focus include enhancing the ease of doing business, promoting quality investments to generate higher-income jobs, ensuring good governance, and investing in better public services and infrastructure towards improving the quality of life for the people.
These initiatives aim to drive the economy forward, with a projected growth rate of 4% to 5% in 2024.
Like other countries, Malaysia is affected by headwinds such as the geopolitical tensions, disruption in supply chains, and persistent tightening of monetary policies to address inflation which in turn may lead to a global slowdown. These culminated in a slump in external demand, exposing the country’s economy to downside risks that could linger for the medium term.
Efforts to rein in these downside risks come from the government’s ongoing initiatives to rope in high-value foreign direct investments (FDI). In 3Q23, for example, net FDI more than doubled from the preceding quarter to RM7.2 billion (2Q23: RM3.1 billion). The financial and insurance/takaful activities; information and communication; and wholesale & retail trade sectors attracted the most FDI, primarily from Hong Kong, China, the UK, Singapore and Japan. Going forward, more efforts will be mobilised to attract FDI in the high-value manufacturing sector, particularly for electrical and electronics, petrochemicals and renewable energy.
© 2024 Institute of Singapore Chartered Accountants