Malaysia Posts Double-Digit Economic Growth Ahead of Polls

Anisah Shukry
·3 min read

(Bloomberg) -- Malaysia’s economy expanded at its fastest pace in more than a year in the third quarter, even as the Southeast Asian nation braces for growth moderation amid political uncertainty and a global slowdown.

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Gross domestic product rose 14.2% in the July-September period from a year ago, driven by consumer spending, according to Bank Negara Malaysia on Friday. That’s faster than all but one estimates in a Bloomberg survey of 22 economists with the median prediction for a 12.5% expansion.

The central bank expects 2022 GDP forecast to exceed the government’s latest projection of 7% growth, central bank governor Nor Shamsiah Mohd Yunus said at a briefing Friday, noting that Malaysia’s economy expanded 9.3% in the first nine months alone. The central bank affirmed the government’s full-year growth view of 4%-5% for 2023.

Even so, there are “still some spots in our economy that have yet to return to pre-crisis conditions,” Shamsiah said, listing sectors including food and beverage, construction and mining where activity is yet to recover to pre-Covid levels.

The main stocks index held gains, rising 1% at the midday break, while the ringgit rose in tandem with Asian currencies amid bets the Federal Reserve may hike rates at a slower pace, after the US reported weaker-than-expected CPI.

Global Headwinds

While Malaysia has rebounded swiftly from the pandemic, it faces challenges from the expected slowdown in global growth, said Vishnu Varathan, head of economics and strategy at Mizuho Bank Ltd. in Singapore.

“The tailwinds of commodities and oil have helped, and the manufacturing sector has been powered by a robust recovery story,” he said. “But the bigger picture is that the uneven recovery across sectors is a baggage while impending global headwinds may be the risk to watch.”

While a slowdown in global growth will impact Malaysia’s exports, the central bank does not expect the country to suffer a recession, Shamsiah said, thanks to domestic demand.

The strong performance last quarter will provide BNM more room to continue raising borrowing costs to tame inflation. At 2.75%, the overnight policy rate remains below pre-Covid levels despite a cumulative one percentage point of hikes in the past four meetings, and the BNM is due to announce its next rate decision Jan. 19.

What Bloomberg Economics Says...

With headline inflation having already peaked and relatively benign, we think Bank Negara Malaysia will be able to stick with hikes in 25-basis-point increments.

-- Tamara Mast Henderson, Asean economist

For the full note, click here

Shamsiah reiterated that the central bank is not on any predetermined rate course and that decisions will be made after assessing the evolving conditions at every meeting.

Domestic political uncertainties could muddy the growth outlook further. Malaysia’s general election next week is set to be a tight race compounded by a crowded field, raising the possibility that no coalition can win an outright majority. This may leave parties scrambling to form new alliances and abandon campaign promises.

Shamsiah said inflation likely peaked at 4.5% in the third quarter and will moderate going forward, while attributing broader weakness in the ringgit to dollar strength.

It “does not mean Malaysia is in an economic crisis,” she said, while ruling out the possibility of a recession next year. “We do not see these in indicators.”

--With assistance from Tomoko Sato, Cecilia Yap, Chester Yung and Karl Lester M. Yap.

(Updates with economist’s comment in seventh paragraph)

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