Malaysia: GDP growth soars in Q3 on a low base and robust domestic demand

GDP growth improved to 14.2% year on year in the third quarter, from 8.9% in the second quarter, marking the best result since Q2 2021. The headline expansion was due to a favorable base effect and resilient domestic demand.

Government consumption picked up to a 4.5% expansion (Q2: +2.6% yoy). Additionally, fixed investment growth improved to 13.1% in Q3, from the 5.8% increase recorded in the prior quarter. Meanwhile, household spending growth eased, but remained robust at 15.1% (Q2: +18.3% yoy).

On the external front, exports of goods and services growth hit an over one-year high of 23.9% in the third quarter, picking up from the second quarter's 10.4%. In addition, imports of goods and services growth sped up to 24.4% (Q2: +14.0% yoy).

Nevertheless, underlying momentum continued slowing: On a seasonally adjusted quarter-on-quarter basis, economic growth cooled to 1.9% in Q3, following the previous quarter's 3.5% growth. Q3's reading marked the worst reading since Q3 2021.

Commenting on risks to the outlook, Debalika Sarkar and Sanjay Mathur, economists at ANZ, said:

“[The] external environment is becoming unfavorable. There are clear signs of weakness in export demand, with the new export orders sub-index of the manufacturing PMI steadily contracting for the fourth straight month […]. The uncertainties surrounding global growth, a maturing tech cycle and the aggressive tightening by the US Fed are potential risks. […] The impact of the central bank’s policy rate hikes will also become more prominent over the coming quarters. Overall, we believe that Q3 GDP marks the peak of the cycle.”

FocusEconomics panelists expect GDP to expand 6.2% in 2023, which is unchanged from last month’s forecast. In 2024, our panel sees GDP growth at 4.6%.