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Malaysia’s GDP growth in 2023 fell short of expectations

In 2023, Malaysia’s GDP growth was lower than expected at 3.7% compared to the consensus of 4%. This was mainly due to a decrease in export demand and slower consumption, according to RAM Ratings.

Despite a good start in the first quarter of 2023, global trade weakened throughout the year, causing a significant decline in overall exports and dragging down GDP growth. Additionally, high prices and the absence of substantial policy support affected private consumption, resulting in a lower growth rate of 4.7%.

Despite the disappointing performance in the last quarter, the rating agency believes that the economy will improve in 2024 and has maintained its GDP forecast at 4.5–5.5%. The IMF has also increased its global growth forecast for 2024 by 0.2 percentage points to 3.1%, indicating a higher chance of a positive outcome for the global economy. Malaysia’s export growth has also shown improvement, with a slower contraction in the fourth quarter of 2023 and a rebound in growth in January 2024.

These positive developments, along with the predicted upswing in trade and semiconductors, may indicate the beginning of a turnaround in global trade. The IMF predicts that global trade growth will recover from 0.4% last year to 3.3% this year. Additionally, the latest inflation data in January 2024 suggests a decrease in price pressures, which, combined with a strong job market and favorable financial conditions, could lead to higher domestic demand this year.

However, the economy was supported by a strong pipeline of infrastructure and public projects, as well as expansion in the private sector. Trade softening throughout the year caused a significant drop in exports, impacting overall GDP growth. High prices and reduced policy support affected private consumption, resulting in a 4.7% decrease. However, infrastructure projects and private sector expansion helped boost economic growth. Key risks are still looming ahead, especially with the uncertainty surrounding interest rate cuts in the US and the impact on market volatility. Additionally, the weak ringgit valuation may lead to imported price pressures in the domestic market. There is also a concern about escalating geopolitical conflicts affecting the global commodity market and supply chain. RAM Ratings said it is also keeping a close eye on the execution of RON95 subsidy retargeting in the second half of 2024.

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