KUALA LUMPUR: Malaysia's recovery momentum may take a hit with a weaker external demand, with escalating geopolitical tensions, inflationary pressures and tightening financial market conditions exerting further strain.
Despite these formidable external challenges, their impact is partially mitigated by the anticipated strength in domestic activity, Public Investment Bank Bhd (PublicInvest) said.
Malaysia's recovery momentum continued in the third quarter (Q3) of 2023, with favourable expansion in domestic demand, sustained improvement in employment and income conditions as well as policy support.
This contribute to a gross domestic product (GDP) growth of 3.3 per cent year-on-year (YoY) in Q3 (2Q23: 2.9 per cent), which was higher than market expectation of 3.0 per cent, PublicInvest noted.
Albeit higher than 2Q23's growth, Bank Negara Malaysia highlighted several factors that weighed on 3Q23 growth, notably weaker external demand impacting goods production and exports as well as weaker mining production.
"Additionally, we are of the view that escalating geopolitical tensions, inflationary pressures, and tightening financial market conditions exerted further strain.
"Despite these formidable external challenges posing increased downside risks to the domestic economy, their impact is partially mitigated by the anticipated strength in domestic activity, supported by ongoing recovery in the labour market and the realisation of multi-year investment projects," it noted.
Going into 2024, amid a challenging global context, Bank Negara expects the Malaysian economy to expand between 4.0 and 5.0 per cent.
"Our current outlook for the full-year 2023 GDP stands at 4.0 per cent, with an anticipated increase to 4.5 per cent next year. The initiatives outlined in 2024 Budget are poised to offer further momentum to economic activity.
"However, the growth prospects are susceptible to downside risks, primarily associated with weaker-than-expected external demand and potential prolonged decreases in commodity production."
PublicInvest said private consumption grew 4.6 per cent YoY in 3Q23 (4.3 per cent in 2Q23), while private investments remained positive at 4.5 per cent YoY in 3Q23, compared to 5.1 per cent in 2Q23.
In 3Q23, import growth declined by 11.1 per cent while export growth contracted by 12 per cent in 3Q23. Net exports declined significantly to 22.7 per cent YoY in 3Q23, from -3.7 per cent in 2Q23.