KUALA LUMPUR – Malaysia’s economic growth hit the lowest in nearly two years in the second quarter of 2023, because of sliding exports and a global slowdown, prompting the country’s central bank on Friday to warn that full-year growth will come in at the lower end of its previous forecast.
The export-oriented economy is dependent on global growth, which is facing mounting fears of recession. A weak ringgit currency and a slowdown in China, Malaysia’s main trading partner, are also weighing on the economy.
Second-quarter growth came in at 2.9 per cent from a year earlier, central bank data showed.
The expansion was at the slowest pace since the third quarter of 2021 when the economy contracted by 4.2 per cent, and was lower than the 5.6 per cent growth in the first quarter of 2023.
It was also worse than the 3.3 per cent growth forecast by economists surveyed by Reuters.
Bank Negara Malaysia (BNM), the central bank, said the country’s full-year economic expansion will come in at the lower end of the 4 per cent to 5 per cent range it had forecast earlier.
“The weak external demand is expected to weigh on near-term growth,” BNM governor Abdul Rasheed Ghaffour told a news conference on Friday.
“The economy is facing downside risks stemming from weaker-than-expected global growth, and a deeper or longer-than-expected technology down cycle.”
Malaysia could also see lower-than-expected commodity production due to the stronger impact from El Nino and prolonged plant maintenance, he said.
The country is one of the world’s biggest exporters of palm oil and liquefied natural gas.
Improving tourist arrivals and faster implementation of domestic projects could provide some upside, Datuk Abdul Rasheed said.
While he does not expect a worldwide recession, the governor said global growth will be below the long-term average.
Other data on Friday showed that Malaysia’s exports in July slumped 13.1 per cent from a year earlier, much more than economists’ forecast for an 11.3 per cent drop. Imports also fell more than expected.
Bank Muamalat Malaysia chief economist Mohd Afzanizam Abdul Rashid said the economic and trade data shows how susceptible the economy is to the global slowdown.
Malaysian consumers are also likely to be cautious in their spending, leading to slower economic growth in the second half, he said.
“In that sense, risks that gross domestic product might grow below the 4 per cent to 5 per cent projected growth are quite high,” Dr Mohd Afzanizam said.
Malaysia is also facing some pressure from the ringgit, which is the worst-performing currency in South-east Asia in 2023. BNM has said it will intervene in the foreign exchange markets to stabilise the ringgit, which has dropped more than 5 per cent against the United States dollar in 2023.
The ringgit held on to its gains after the data. The currency was up 0.2 per cent to 4.64 per US dollar over Thursday’s close.
The central bank in July kept benchmark interest rates unchanged due to moderating growth and easing inflation, with economists saying it will likely stay on hold for the rest of the year.
On Friday, the central bank said that while cost pressures have eased, headline and core inflation will moderate further in the second half partly due to a higher comparative base in 2022. REUTERS, BLOOMBERG
