KUALA LUMPUR: Malaysia may show positive growth in the third quarter (Q3) ended September due to the strong macroeconomic policy frameworks, including a track record of fiscal prudence and a credible monetary policy framework.
According to the Malaysian Institute of Economic Research (MIER), positive progress has clearly been made towards reducing the inflationary pressures and, except for food and drink, inflation has now reached a manageable level.
Bank Negara Malaysia is set to release the country's gross domestic product growth for Q3 on Friday.
MIER said inflation has continued on a downward trend and reached a somewhat healthy level, with overall core inflation reducing from 2.8 per cent to 2.0 per cent (May to August 2023) and headline inflation down from 3.5 per cent to 2.5 per cent over the same period.
"It is important to note that food and non-alcoholic beverages remains higher than the overall average. Nonetheless, it has seen significant reductions from May to August, from 5.9 per cent to 4.1 per cent (core) and 7.1 per cent to 5.1 per cent (headline).
"While these numbers remain higher than ideal, the significant drops in a short period of time are encouraging and policy work should be continued to maintain the downward trajectory towards a healthier level," it said in a note.
MIER said the political instability, which had plagued Malaysia since 2019 has largely dissipated thanks to the unity government.
"The state polls held this quarter in six Malaysian states did not cause any upheaval with stability being maintained despite divided results (with three states won by the PH-BN coalition and three states by the PN opposition)," it said.
While Malaysia's inflation problems have been significantly less than in many countries, MIER said consumer sentiments and business confidence are nonetheless at a record low.
Q3 2023 saw business confidence hit a low of 79.7 this quarter, only a slight drop quarter-on-quarter from 82.4 but a very significant drop year-on-year from 99.8.
Meanwhile, the Consumer Sentiments Index shows an even more significant drop down to 78.9 (down quarter-on-quarter from 90.8 and year-on-year from 86.0).
Given slow but steady growth of the economy and encouraging reductions in inflation, MIER said it may seem difficult to understand why both businesses and consumers are so pessimistic.
Nonetheless, it sajd combating this and encouraging spending and investment must be a top priority to prevent further reductions in growth going forward.
"These results should pose a significant concern for the government as they could very easily turn into reduced growth if people are unwilling to spend their savings for fear of reduced spending power in the future," it added.