Malaysia Domestic Demand (ann. var. %)

Domestic Demand in Malaysia

GDP growth grows at softest pace in a year in Q1

GDP growth moderated to 5.6% year on year in the first quarter from 7.1% in the fourth quarter of last year. Q1’s reading marked the slowest growth since Q1 2022.

The downturn was broad-based, with growth in private consumption and, fixed investment weakening, and public spending exports declining year on year. Household spending growth fell to 5.9% in Q1, marking the softest expansion since Q1 2022 (Q4 2022: +7.3% yoy). In addition, government consumption deteriorated, contracting 2.2% in Q1 (Q4 2022: +3.0% yoy). Meanwhile, fixed investment growth fell to 4.9% in Q1, marking the lowest reading in a year (Q4 2022: +8.8% yoy).

On the external front, exports of goods and services contracted 3.3% in Q1, marking the worst result since Q3 2020 (Q4 2022: +8.6% yoy). Imports of goods and services also deteriorated, contracting 6.5% in Q1 (Q4 2022: +7.2% yoy).

On a seasonally adjusted quarter-on-quarter basis, GDP rebounded, growing 0.9% in Q1, contrasting with the previous quarter’s 1.7% decrease.

Commenting on the outlook, Euben Paracuelles and Rangga Cipta, economists at Nomura, said:

“We still believe the growth outlook is deteriorating and will disappoint official forecasts […]. We continue to expect GDP growth to slow sharply to 4.2% this year from 8.7% in 2022 (below [Bank Negara Malaysia’s] 4.4%), led by declining export growth, which we think will have quick negative spillover effects for domestic demand via falling wage growth and softening labor markets.”

Analysts at the EIU added:

“We maintain our view that headline growth momentum will fade starting from the second quarter. An anticipated recovery in global electronics demand will provide a tailwind to Malaysia’s goods exports by the second half of 2023, allowing headline growth to stabilise around the fourth quarter of this year.”