Malaysia’s economic growth is expected to moderate to 3.9 per cent in 2023 from an earlier projection of 4.3 per cent in April this year amid a substantial deceleration of external demand, according to the World Bank on Monday (Oct 2).
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NewsTranscript
00:00 Now in terms of growth outlook, we project Malaysia to expand at a moderate pace in this
00:06 year and next year.
00:07 So 2023 growth is 3.9 percent, 2024 growth is 4.3 percent, and our growth for this year
00:15 is actually 0.4 percentage point lower than our previous forecast.
00:21 And the reason for this is, should come as no surprise, lower global growth this year
00:26 than the last year, so anemic global growth, weak external demand, and we can see that
00:31 in Malaysia's exports numbers which contracted by 3.3 percent and 9.4 percent in the first
00:37 two quarters of this year.
00:38 Now one interesting finding, a new finding is that, so we know Malaysia is sensitive
00:43 to changes in external demand, but how much so?
00:48 Especially when it comes to some of its largest trading partners, so China and the U.S.
00:52 So we estimated that the one percentage point fall in the U.S. growth rate could reduce
00:59 Malaysia's growth by 0.82 percentage point.
01:04 And a one percentage point fall in China's growth rate could reduce Malaysia's growth
01:10 by 0.45 percentage point.
01:13 So this is how sensitive Malaysia's growth is to U.S. and China's.
01:20 Here but it's also important to keep in mind it's not just external factors that
01:23 weigh down on Malaysia's growth, it's also domestic factors.
01:28 And what are some of those?
01:29 Well, first is simply just pure sort of accounting, if you will, base effects.
01:35 Because growth was high last year, because of base effects, growth registers lowered
01:39 this year.
01:40 That's one.
01:41 Second, extreme weather events, hot weather affecting agricultural output earlier this
01:46 year.
01:47 So that has an implication and keep in mind that most rice production in Malaysia is concentrated
01:51 in northern Malaysia.
01:53 So extreme weather events can have a disproportionate impact on agriculture, rice and food security.
02:00 And BNM had also flagged plant maintenance in the mining sector as a temporary factor
02:05 that affected second quarter growth and hence growth this year.
02:09 But let's also keep in mind that there are dampening effects on spending growth from
02:13 monetary policy normalization, especially on interest rate sensitive sectors.
02:19 And one important statistic to keep in mind is that Malaysia has a second highest household
02:24 debt in the region after Thailand.
02:27 So the lagged effects of monetary policy would be expected to have an impact this year.
02:34 So if I were to step back and summarize 2023, so 2023 for Malaysia was basically an economy
02:41 that was driven primarily by domestic demand, where external demand took a back seat.
02:47 But it's also important to keep in mind that during good times, Malaysia benefits from
02:52 positive spillover effects from higher global growth and stronger external demand.
02:56 So it cuts both ways.
02:59 And indeed we project stronger, as you saw in the previous graph, so we project stronger
03:08 growth next year of 4.3%.
03:10 And this is very much based on better external prospects of stronger global growth, higher
03:16 oil prices, stronger domestic demand domestically, higher number of approved investments, tourism
03:22 that is bouncing back, improvements in the labor market, and overall easing inflation.
03:27 So indeed 2024 underscores actually an improvement in growth momentum relative to 2023.
03:33 So that's all I wanted to say about growth.
03:37 Again keeping in mind that the benefits of growth have not trickled down fully, about
03:41 half a million households still remain under the poverty line.
03:45 Real estate and construction output levels are still below pre-pandemic levels.
03:49 But next year should be better than this year.
03:52 Thank you.
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