KUALA LUMPUR, Nov 11 (Reuters) – Malaysia’s economy grew at its fastest pace in more than a third quarter, outpacing the growth of many of its Southeast Asian peers, but the central bank said the outlook was marred by the risk of a global slowdown.
The economy grew by a better-than-expected 14.2% in the third quarter from last year’s low, as measures to contain the spread of COVID-19 slowed economic activity.
Although the central bank sees growth in 2022 higher than the government’s expectations, it said the slowdown in the quarter is in line with the expected growth.
Malaysia’s economy has recovered rapidly from the COVID-19 pandemic after the government began easing restrictions in April but there are concerns that the global economic slowdown could hurt future economic growth.
“We acknowledge that there are some financial areas that have not returned to their pre-epidemic conditions,” central bank governor Nor Shamsiah Yunus told a press conference on Friday.
“Global growth will have a big impact on Malaysia’s trade.”
Gross Domestic Product (GDP) grew at the fastest pace since the second quarter of 2021 in the July-September period. Economists in a Reuters poll had expected GDP to rise 11.7% after rising 8.9% in the previous quarter.
The jump in the third quarter was driven by growing domestic demand, a strong recovery in the labor market, strong exports, and continued policy support, Nor Shamsiah said. It outpaced the economic growth of many of its regional peers, including Indonesia, the Philippines, Singapore and Vietnam.
The GDP data also comes as Malaysia is set to hold national elections this month, where the economy and inflation are expected to be on the voters’ radar.
The central bank said it expects GDP to exceed the government’s target of 6.5%-7% in 2022, but sees growth slowing to 4.0%-5.0% next year.
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Private consumption rose 15.1% in the third quarter from a year ago and exports rose 18.7%, the central bank said, adding that growth was seen in all sectors including services, construction and manufacturing.
Quarter-on-quarter economic growth slowed to 1.9% from 3.5% in the previous three months.
Capital Economics expects Malaysia’s economic growth to “suffer” in the coming quarters.
“Exports may weaken in the future if, as we expect, commodity prices fall and the global economy slows in 2023,” said its Asia economist Shivaan Tandon.
“Individual spending growth is also expected to be weak due to slower domestic reopenings, a weaker labor market, higher commodity prices and looser monetary policy.”
Headline inflation reached 4.5% in the third quarter and is expected to moderate later, but will remain elevated, the central bank said.
Inflation in Malaysia has been boosted by government subsidies and rate control measures this year, but risks remain, with the central bank issuing its fourth consecutive 25-basis-point rate hike last week.
The rise in prices comes as the ringgit has fallen 10.8% against the US dollar this year, with the greenback supported by the Federal Reserve’s strong monetary tightening.
Shamsiah also said the ringgit currency will change to reflect Malaysia’s economic fundamentals.
“Malaysia is not in a financial crisis,” he said, adding that the country will not see a recession next year.
Rozanna Latiff and Mei Mei Chu reports; Edited by Ana Nicolaci da Costa
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