KUALA LUMPUR – The Malaysian economy expanded by 3.3% in the third quarter of 2023 (3Q 2023) from 2.9% in 2Q 2023, supported by resilient domestic demand, Bank Negara Malaysia (BNM) said.
BNM governor Datuk Abdul Rasheed Ghaffour said household spending remained supported by continued growth in employment and wages, while investment activity was underpinned by the progress of multi-year projects and capacity expansion by firms.
“Exports remained soft amid prolonged weakness in external demand. This, however, was partially offset by the recovery in inbound tourism.
“On the supply side, the services, construction, and agriculture sectors remained supportive of growth,” he said during the 3Q gross domestic product (GDP) announcement here today.
However, Rasheed noted that this was partly offset by the decline in production in the manufacturing sector, given the weakness in demand for electrical and electronic products and the lower production of refined petroleum products.
On a quarter-on-quarter seasonally adjusted basis, he said the economy grew by 2.6% (2Q 2023: 1.5%), while overall, the Malaysian economy expanded by 3.9% in the first three quarters of 2023.
Meanwhile, BNM is confident that Malaysia’s economy will register a growth of 4.0% this year and between 4.0% and 5.0% in 2024 after taking into consideration the country’s strong economic indicators, said Rasheed.
Citing strong demand for passenger cars as well as private consumption, he stated that Malaysia’s economic data demonstrate the country’s resilience in the face of continuous external shocks.
“Malaysia, as a well-diversified economy, would be able to achieve the growth targeted for next year,” he told a press conference after announcing the 3Q 2023 GDP print here today.
Rasheed also stated that the central bank had considered the imposition of an 8% service tax in Budget 2024, which could have an influence on public consumption.
“The service tax next year may have some impact in terms of consumption, but we have taken into consideration all the announcements made in Budget 2024 into our growth projection for next year,” said the governor.
Ringgit
In 3Q 2023 and year-to-date, the ringgit had depreciated amid the broad US dollar strength following the United States policy rate hikes.
In response to the ringgit’s depreciation against the US dollar, Rasheed said BNM is constantly pushing the use of local currencies in trade and settlements in order to relieve pressure on the ringgit.
“To relieve pressure on the ringgit, we have embarked on settlement in local currencies, for example, in the arrangement we have with China, whereby 25% of trade is in local currencies,” he said, reiterating that the present exchange rate between the ringgit and the US dollar does not reflect Malaysia’s strong and resilient economy.
He further elaborated that Malaysia has a solid banking system, a robust financial market, and government policies to entice investors, all of which will provide more support for the ringgit.
“The persistently strong US dollar is therefore not expected to derail Malaysia’s growth prospects.
“Going forward, global financial market uncertainties are expected to ease, barring any new adverse developments such as geopolitical tension, as the financial market expects the US policy rate to be reduced next year.
“This should ease the US dollar’s strength and thus reduce the pressure on the ringgit,” he added.
Commenting on the impact of the current geopolitical tensions in West Asia, Rasheed said the ongoing war would result in a volatile financial market; nevertheless, Malaysia’s exposure to the market is minimal.
Digital banks
Meanwhile, Rasheed reassured that digital banks will not have any negative effect on the financial sector as they enhance competition and provide benefits for consumers.
“For digital banks, their focus will be on the unserved and underserved segments of the economy.
“There are areas where our existing financial institutions are not serving, so these banks will come in to actually cater to this market; it will complement all the services and products provided by the existing banks.
He noted that in September, GX Bank was the first digital bank to receive approval to commence operations and that there will be another four digital banks.
“There is also no restriction for existing banks to move towards digitalisation as this will further enhance efficiency and competitiveness,” he said. – November 17, 2023