The economy expanded by 7.0% in the fourth quarter (3Q 2022: 14.2%)

The Malaysian economy grew slower in the fourth quarter of 2022 (7.0%; 3Q 2022: 14.2%) as support from the stimulus measures and low base effect^[1] waned. At 7.0%, the growth was still above the long-term average of 5.1%^[2]. Private sector activity remained the key driver of growth, supported by private consumption and investment. The continued growth in private consumption was mainly driven by improving labour market conditions. Meanwhile, overall export growth moderated in line with the weaker external demand. This was partly offset by the resilient performance in exports of electrical and electronic (E&E) products and higher tourism activities. The services and manufacturing sectors continued to drive growth. On a quarter-on-quarter seasonally-adjusted basis, the economy registered a decline of 2.6% (3Q 2022: +1.9%). Overall, the Malaysian economy expanded by 8.7% in 2022.

Headline inflation moderated to 3.9% during the fourth quarter (3Q 2022: 4.5%). The moderation was mainly due to the lapse in the base effect on electricity inflation, a key contributor to the higher inflation in the third quarter of 2021. The moderating trend in key global commodity prices partly led to lower inflation in some Consumer Price Index (CPI) items, including fuel. Inflation for some key staple food items, such as fresh meat and eggs, also moderated during the quarter. However, the downward impact of these factors was partly offset by higher core inflation. Core inflation increased to 4.2% (3Q 2022: 3.7%), driven by the continued strength in demand amid a still-elevated cost environment. For 2022 as a whole, headline inflation increased to 3.3% (2021: 2.5%) and core inflation averaged higher at 3.0% (2021: 0.7%).

Exchange rate developments

Domestic financial conditions have eased mostly due to global developments during the quarter. In particular, market expectations for smaller interest rate increases by the US Federal Reserve amid indications of slowing inflation in the US have eased the strength of the US dollar. Global investor sentiments on the ringgit and regional currencies have also been somewhat lifted by the reopening of China’s economy and its expected positive economic spillovers to the region.

These encouraging global developments and greater domestic political certainty after the formation of the new Government in November 2022 led to a stronger ringgit against the US dollar. In line with other regional currencies, the ringgit ended the quarter stronger by 5.3% against the US dollar. Similarly, the ringgit also strengthened against several major trading partners – the nominal effective exchange rate (NEER) appreciated by 0.4% during the quarter. Moving forward, BNM will continue to closely monitor global and domestic financial conditions, and ensure orderly financial market adjustments.

Financing conditions

Credit to the private non-financial sector grew by 4.7% (3Q 2022: 5.3%) amid the lower outstanding loan growth (4.7%; 3Q 2022: 5.7%). Meanwhile, outstanding corporate bonds continued to grow by 4.6% (3Q 2022: 4.0%). Outstanding business loans grew by 3.3%, as the sustained strong growth in loan repayments outpaced that of loan disbursements. Despite the slower growth in loan applications, loan disbursement growth was sustained (12.0%; 3Q 2022: 18.0%), particularly for working capital loans as firms continued to draw down on their existing credit facilities. For households, outstanding loan growth expanded by 5.5% amid the slower growth in loan disbursements (10.3%; 3Q 2022: 48.1%) and sustained growth in loan repayments.

Domestic demand will be key to Malaysia’s growth performance in 2023

For 2023, the Malaysian economy is expected to expand at a more moderate pace amid a challenging external environment. Domestic demand will continue to drive growth, supported by the continued recovery in the labour market and the realisation of multi-year investment projects. The services and manufacturing sectors will also continue to support growth. Meanwhile, the slowdown in exports following weaker global demand would be partially cushioned by higher tourism activity. The balance of risks remains tilted to the downside, mainly from weaker global growth, tighter financial conditions, re-escalation of geopolitical conflicts and worsening supply chain disruptions.

Headline inflation to moderate but remain at elevated levels in 2023

Headline and core inflation are expected to moderate but remain elevated in 2023 amid lingering cost and demand pressures. Core inflation is expected to remain elevated in the near term, in part due to the low base in the first half of 2022. Existing price controls and fuel subsidies, and the remaining spare capacity in the economy, will continue to partly contain the extent of upward pressures to inflation. The inflation outlook remains highly subject to any changes to domestic policy, as well as global commodity price developments.

Bank Negara Malaysia will publish its Annual Report 2022, the Economic and Monetary Review 2022, and the Financial Stability Review for the Second Half of 2022 on 29 March 2023.

^[1] The low base effect originated from the decline in economic growth in the third quarter of 2021 (-4.5%), partially contributing towards a high growth of 14.2 % a year later, in the third quarter of 2022.

^[2] Average from 1Q 2011 to 4Q 2019.

See also:

• Press Conference Slides (PDF)
• Press Conference Presentation Transcript
• Press Conference Video
• Publication: Quarterly Bulletin Fourth Quarter 2022
• Table 1: GDP by Expenditure Components and Economic Activity