Domestic Demand Galvanised Third Quarter Economic Growth Amid Challenging Global Conditions

Domestic demand anchored the Malaysian economy in the third quarter of 2023 (Q3 2023), while global conditions remained weak and volatile. The gross domestic product (GDP) in Q3 2023 rose 3.3%, bringing growth in the nine months of 2023 to 3.9%. This is consistent with the Government’s growth forecast of approximately 4% for 2023.

Domestic demand soared by 4.8% in Q3 2023, with the resilient labour market and an improving tourism sector lending further support. In terms of supply, the Malaysian economy’s growth was propelled by expansion in the services (5%), agriculture (0.8%) and construction (7.2%) sectors. Offsetting these growths were minor contractions in the manufacturing (0.1%) and mining and quarrying (0.1%) sectors. Meanwhile, total trade contracted by 15.7% to RM653.3 billion.

“The dynamic domestic demand reflects the MADANI Government’s ongoing efforts to restore the vibrancy of the Malaysian economy. The early stages of fiscal reforms undertaken by the Government has already generated savings and higher revenue that are being redistributed to the rakyat directly or indirectly,” said YAB Dato’ Seri Anwar bin Ibrahim, Prime Minister and Finance Minister.

“The labour market continued to improve, with the unemployment rate declining to 3.4% in Q3 2023, a decline by 1.4% of unemployed persons from the preceding quarter. Inflation on the other hand moderated to 2% from 2.8% in Q2 2023, aided by the Government’s consumption subsidies to temper services and food price increases,” he added.

In September 2023, Malaysia’s Consumer Price Index (CPI) growth of 1.9% was far more benign than selected advanced economies and regional countries such as the UK (6.7%), the Philippines (6.1%), Singapore (4.1%), the US (3.7%) and Indonesia (2.3%).

Ekonomi MADANI reforms to bolster Malaysia’s underlying fundamentals

As the domestic market continues to improve, the onset of a recovery in electrical and electronics (E&E) industry is envisaged to provide some reprieve to the export market in Q4 2023.

Moving into 2024 and beyond, the Government will further implement the economic reforms as mapped out in the Ekonomi MADANI: Memperkasa Rakyat framework, together with key policy documents such as the National Energy Transition Roadmap, the New Industrial Master Plan 2030, and the 12th Malaysia Plan Mid-term Review. Focus areas include improving ease of doing business, promoting quality investments to generate higher-income jobs, ensuring good governance, and investing in better public services and infrastructure towards improving the quality of life for the rakyat.

“Belanjawan 2024 will effectively translate the MADANI Government’s fiscal and economic reforms into reality, with more measures introduced to realise the vision set forth in the Ekonomi MADANI. While the Government will continue to taper the fiscal deficit from 5% in 2023 to 4.3% in 2024, it remains steadfast with a expansionary fiscal policy stance to support Malaysia’s economic growth and ease the rakyat’s cost-of-living burden,” said YAB Dato’ Seri Anwar.

“The steady performance in Q3 2023 sets a strong signal for a positive trajectory for Malaysia to achieve economic resilience and support the restructuring of the economy envisaged under Ekonomi MADANI,” he added.

Nonetheless, geopolitical tensions have set a domino effect following a protracted disruption in the global supply chains and elevated global interest rates. These culminated in a slump in external demand, exposing the country’s economy to downside risks that could linger for the medium-term.

Efforts to rein in these downside risks come from the Government’s ongoing initiatives to rope in high-value foreign direct investments (FDI). In Q3 2023, net FDI more than doubled from the preceding quarter to RM7.2 billion (Q2 2023: RM3.1 billion). The financial and insurance/takaful activities; information and communication as well as wholesale & retail trade sectors attracted the most FDI, primarily from Hong Kong, China, the UK, Singapore and Japan. Going forward, more efforts will be mobilised to attract FDI in the high-value manufacturing sector, particularly for E&E, petrochemicals and renewable energy.

Ministry of Finance
Putrajaya
17 November 2023