The expansion was stronger at 14.2% in the third quarter (Q2 2022: 8.9%). Malaysia’s economy recorded stronger growth of 14.2% in the third quarter of 2022 (Q2 2022: 8.9%). Despite the base effect of negative growth in the third quarter of 2021, growth was also driven by strong domestic demand, supported by improved labor and income market conditions and continued policy support. Exports continue to be supported by demand strong for E&E products. The restoration of domestic tourism provides additional support to economic activity. By sector, growth continued to be driven by the service and manufacturing sectors. On a seasonally adjusted quarter-to-quarter basis, the economy grew by 1.9% (Q2 2022: 3.5%). Overall, Malaysia’s economy grew by 9.3% in the first three quarters of 2022.
Overall inflation this year may have reached its highest level of 4.5% in the third quarter (2Q 2022: 2.8%) while core inflation continued to rise to 3.7% (2Q 2022: 2.5%). As expected, the improvement
in overall inflation was largely driven by base effects from electricity bill discounts implemented in the third quarter of 2021, as well as continued increases in core inflation and volatile goods. Inflationary pressures reflect a combination of rising cost pressures, particularly for food-related goods as well as strong demand conditions.
Exchange rate developments
The ringgit depreciated by 4.9% against the US dollar in the third quarter of 2022 (year to date to 9 November 2022: -11.2%), in line with regional currencies which depreciated by an average of 5.5% (year to date: -9.5 %). This reflects the continued strengthening of the US dollar following the continued tightening of monetary policy by the US Federal Reserve and higher risk aversion activities by investors due to moderate global growth prospects. Nevertheless, strong domestic growth further reduced the external pressure on the depreciation of the ringgit. In the future, although domestic financial markets may experience higher volatility risks, spillovers to domestic financial intermediation are expected to be contained. This is supported by Malaysia’s strong external position and robust capitalization of the banking system. Bank Negara Malaysia will continue to closely monitor market developments and ensure that adjustments remain orderly to support effective intermediation of the economy.
Financing situation
Net financing to the private sector increased by 5.4% (2Q 2022: 4.9%), supported mainly by higher outstanding loan growth (6.1%, 2Q 2022: 5.4%) driven by the household segment. Meanwhile, cumulative corporate bond growth remains sustainable at 3.5% (2Q 2022: 3.4%). Growth in outstanding business loans was at 5.0% as loan repayment growth outpaced loan disbursement growth. Loan applications continue to encourage across segments and most loan purposes. For households, outstanding loans increased by 6.2%, mostly due to high loan disbursement growth for house and car purchases.
Malaysia’s economy will be supported by strong domestic demand
The economy will continue to grow albeit at a more moderate pace in the fourth quarter of 2022. The expected slower growth rate reflects a more challenging global environment as well as the absence of base effects. However, growth for the whole of 2022 is expected to remain strong following strong growth in the first three quarters of the year. In the future, Malaysia’s economy is expected to grow by 4.0 – 5.0% in 2023. Bank Negara Malaysia Governor Tan Sri Nor Shamsiah explained, “Malaysia’s economy will continue to be supported by strong domestic demand following an improving labor market. Growth will also benefit from the implementation of large infrastructure projects as well as higher tourist arrivals. However, Malaysia’s growth remains vulnerable to weaker-than-expected global growth, higher risk-averse activity in global financial markets, escalating geopolitical conflicts, and supply chain disruptions again.”
Overall inflation is expected to moderate for the remainder of 2022
Overall inflation is expected to moderate in the fourth quarter of 2022, but remain high. The base effect of electricity bill discounts that contributed to higher inflation in the third quarter will moderate in the fourth quarter of 20222. Overall, headline inflation is expected to average 3.3% in 2022. 3 Core inflation, as measured by core inflation, is expected to remain high for the remainder of 2022 as demand continues to improve amid high costs. By 2023, overall and core inflation are expected to remain high due to demand and cost pressures, as well as any changes in domestic policy measures. The additional impact of higher inflationary pressures will continue to be partly contained by existing price controls, subsidies, and continued overcapacity in the economy. The balance of risks in relation to the inflation outlook in 2023 tends towards higher inflation and continues to depend on domestic policy measures regarding subsidies as well as developments in global commodity prices resulting mainly from the ongoing military conflict in Ukraine and protracted supply-related disruptions.