Malaysia's economy grows faster than expected in Q3 on domestic demand

KUALA LUMPUR: Malaysia's economy grew faster than expected in the third quarter, with the central bank expecting buoyant domestic demand to continue offsetting a slowdown in exports.

Gross domestic product (GDP) expanded 3.3 per cent from a year earlier in the July to September period, data from Bank Negara Malaysia (BNM) and the Statistics Department showed, beating analysts' estimates for a 3 per cent expansion and recovering from a near two-year low of 2.9 per cent in the second quarter.

The reading was in line with advance estimates released on Oct 20.

Malaysia's economic growth is expected to meet the government's target of 4 per cent this year, driven by strong domestic spending, improving labour market conditions, and rising tourism, BNM Governor Abdul Rasheed Ghaffour told reporters.

"Malaysia's economic fundamentals remain strong and supportive of growth moving forward," he said, adding that GDP had exceeded pre-pandemic levels.

The government estimates the economy will expand by between 4 per cent to 5 per cent in 2024.

The Southeast Asian economy has faced sharply slower growth this year after a 22-year high of 8.7 per cent in 2022, amid weaker international demand.

Malaysia, a major global supplier of palm oil and semiconductors, saw exports decline 12 per cent in the third quarter, though the central bank expects a recovery amid a pickup in the tech cycle next year.

The central bank held its key interest rate unchanged at 3 per cent earlier this month amid moderating inflation, and warned of risks due to weaker-than-expected external demand and declines in commodity production.

Headline inflation came in at 2 per cent in the third quarter, and is expected to remain modest going into next year, Abdul Rasheed said.

He downplayed concerns about the ringgit currency, which has fallen around 6 per cent against the US dollar this year, one of the weakest performers in the region, saying it did not reflect strength in the economy.

"In the longer run, we believe that the ringgit will reflect the underlying fundamentals that have been quite strong," Abdul Rasheed said.

Mohd Afzanizam Abdul Rashid, chief economist at Bank Muamalat Malaysia, said the economy "still had room to grow".

"Tourist arrivals have yet to reach the pre-pandemic levels and the technology sector has been negative this year but expected to improve in 2024," he said.

"All in all, I think next year’s growth projection of 4 per cent to 5 per cent is an attainable target."