Malaysia Economic Outlook
In Q4, the economy expanded at a slower annual pace compared to Q3. Q4’s slowdown was broad-based, with private spending registering the steepest moderation due to a less favorable base and strong inflationary pressures. Meanwhile, exports growth deteriorated against a bleaker external background. Nevertheless, full-year growth for 2022 came in at 8.7%, the highest rate since 2000. In Q1 2023, annual economic growth is likely slowing further. In January, the manufacturing PMI declined further into contractionary terrain owing to falling output and weaker new orders. Moreover, tighter financial conditions in key export markets are likely depressing external demand. On 15 February, Fitch Ratings affirmed Malaysia’s BBB+ rating. The agency lauded the economy’s diversification supporting strong medium-term growth but pointed to elevated public debt and political uncertainty as key liabilities.
Inflation cooled to 3.8% in December (November: 4.0%), sustaining the downtrend in price pressures. Price controls, fuel subsidies, higher interest rates and waning domestic demand should see the headline rate fall to the Central Bank’s 2.0–3.0% target in Q2 2023. Higher wages, potential depreciatory pressures on the ringgit and commodity price spikes pose upside risks.