November 29, 2022

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Malaysia posts fastest economic growth in over a year, outlook from Health & Fitness Journal clouded

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©Health & Fitness Journal. FILE PHOTO: People wearing protective masks walk at a park amid the coronavirus disease (COVID-19) pandemic in Kuala Lumpur, Malaysia? September 27, 2021. REUTERS/Lim Huey Teng

By Rozanna Latiff and Mei Mei Chu

KUALA LUMPUR (Health & Fitness Journal) – Malaysia’s economy grew at its fastest pace in over a year in the third quarter, outpacing the growth rate of many of its Southeast Asian peers, but the central bank said the outlook was clouded by the risk of a global slowdown.

The economy grew 14.2%, faster-than-expected in the third quarter from a low base a year earlier when measures to contain COVID-19 slowed economic activity.

While the central bank expects growth in 2022 to beat government forecasts, it said a slowdown in quarterly expansion coincided with an expected slowdown in growth.

Malaysia’s economy has recovered quickly from the COVID-19 pandemic after the government began easing restrictions in April, but there are concerns that a slowdown in the global economy could hurt export growth going forward.

“We recognize that there are still some parts of our economy that have yet to return to their pre-pandemic state,” Central Bank Governor Nor Shamsiah Yunus said at a news conference on Friday.

“The slowdown in global growth will have a particularly strong impact on Malaysia’s exports.”

Gross domestic product (GDP) grew at its fastest rate since the second quarter of 2021 in the July-September period. Economists expected GDP to rise 11.7% in a Health & Fitness Journal poll after rising 8.9% in the previous quarter.

The third-quarter jump was driven by continued expansion in domestic demand, a solid recovery in jobs, solid exports and continued policy support, Nor Shamsiah said. It outpaced the economic growth of many regional competitors, including Indonesia, the Philippines, Singapore and Vietnam.

The GDP data also comes as Malaysia is set to hold national elections this month, with the economy and inflation likely to be at the forefront of voters’ considerations.

The central bank said it expects GDP to beat the government’s forecast of 6.5% to 7% in 2022 but sees growth slowing to 4.0% to 5.0% next year.

EXPORT OUTLOOK

Private consumption rose 15.1% year on year in the third quarter and exports surged 18.7%, the central bank said, adding that growth was evident in all sectors, including services, construction and manufacturing.

Quarter-on-quarter economic growth slowed to a seasonally adjusted 1.9% from 3.5% in the previous three-month period.

Capital Economics expected Malaysia’s economic growth to “struggle” in the coming quarters.

“Exports are likely to weaken going forward if commodity prices fall as we expect and the global economy enters recession in 2023,” said emerging Asia economist Shivaan Tandon.

“Private consumption growth is also likely to be weak on the back of a fading boost from the reopening of domestic markets, less favorable labor market conditions, high inflation and tighter monetary policy.”

Headline inflation likely peaked at 4.5% in the third quarter and is expected to moderate thereafter, but will remain elevated, the central bank said.

Inflation in Malaysia has been largely contained this year by record levels of government subsidies and price control measures, but upside risks remain as the central bank announced its fourth straight 25 basis point rate hike last week.

The rate hikes come as the ringgit has fallen 10.8% against the US dollar this year, with the greenback being supported by the Federal Reserve’s aggressive monetary tightening.

Nor Shamsiah said the ringgit currency will adjust to reflect Malaysia’s economic fundamentals.

“Malaysia is not in an economic crisis,” she said, adding that the country will not experience a recession next year.

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