Malaysia Q2 GDP: Growth Weakens as Trade Moderates
Malaysia's economic landscape is losing its sheen as real GDP growth decelerates and the trade surplus declines. Q2-2023 saw significant movements in key macroeconomic indicators, as real GDP growth moderated to 2.9% y/y as merchandise exports continued to dim over the period. Malaysia’s external sector weakened as all of its key exports (palm oil, mining exports and petroleum goods) declined during the period.
Figure 1: Malaysia Real GDP Growth (%)
Source: Department of Statistics Malaysia
Malaysia’s real GDP growth disappointed in Q2-2023, coming in short of the market consensus at 2.9% y/y. This figure marked a sharp deceleration from the robust 5.6% y/y growth experienced in the previous quarter. Growth during the quarter was led by primarily two sectors - services and construction. The services sector displayed remarkable resilience, posting a 4.7% y/y increase in value-added. Noteworthy contributors included transportation and storage (13.5% y/y growth), business services (10.7% y/y), and accommodation (49.0% y/y). Conversely, the manufacturing sector's value-added growth was subdued, recording a mere 0.1% y/y increase. This could be attributed to weak electronic component output, which declined by 1.9% y/y, dragging down the overall performance of the sector. Additionally, mining and agriculture outputs also faced setbacks, with falls of 2.3% y/y and 1.1% y/y, respectively. The declines were reflective of the global economy slowing down as well, and demand for Malaysia’s key exports dimming.
Figure 2: Malaysia Import and Export Growth (% y/y)
Source: Department of Statistics Malaysia
On the demand side, private consumption and gross fixed capital formation were the primary drivers of growth, rising by 4.3% y/y and 2.5% y/y, respectively. Meanwhile, government final consumption increased by 3.8% y/y, indicating some degree of public sector support for economic activity. However, exports continued to be a stumbling block, declining by 9.4% y/y. This was partially offset by a 9.7% y/y decrease in imports, which mitigated the overall impact on growth.
Despite the modest growth in Q2 2023, challenges loom on the horizon. The deceleration in GDP growth from the previous quarter raises concerns about the sustainability of the recovery. The weak performance of the manufacturing sector, coupled with the decline in exports is likely to persist over 2023. While tourism activity is expected to rebound, contributing positively to economic expansion, the headwinds posed by sluggish exports and base effects cannot be ignored. The government's efforts to bolster investment in key sectors and enhance the business environment will likely play a pivotal role in revitalizing the economy. However, this is unlikely to provide substantial boost. Tighter global liquidity conditions coupled with a high interest rate environment suggest that investment inflow will remain muted over 2023, and could defer domestic private investment growth.