Economic Focus: 4Q23 GDP - Dented by sluggish external trade

19 February 2024


  • 4Q23 GDP grew +3.0% y-o-y drieven by resilient domestic spending amid weaker external demand
  • Brighter prospects in 2024 underpinned by robust investment activities healthy household spending and subsiding external headwinds
  • We remain cautiously optimistic of Malaysia's prospects and maintain our 2024 GDP growth projection of 4.3% y-o-y
Moderation in December

Malaysia’s economy grew 3.0% y-o-y but fell 2.1% q-o-q on a seasonally adjusted (SA) basis in 4Q23 (3Q23: +3.3% y-o-y; +2.6% SA q-o-q), taking 2023 GDP growth to 3.7% (vs 8.7% in 2022). The weaker-than-expected 4Q23 was largely due to continued weakness in export-oriented industries which offset the robust growth from domestic expenditure. In terms of monthly GDP, December recorded a substantially lower y-o-y growth of 1.4% (3.9% in Oct, 3.8% in Nov), attributed to shorter school holiday and weak manufacturing activities. Nevertheless, it is noteworthy that 4Q23 domestic demand grew by 5.2% y-o-y – the strongest quarterly growth in 2023.

Robust labour market conditions

Domestic demand remains fundamentally strong due to sustained expansion in the labour market as unemployment rate inched lower to 3.3% in Dec 2023 (from 3.4% in Sep 2023) with historic high labour force participation rate, resulting in strong private consumption y-o-y growth of 4.2%. 4Q23 employment  growth has also continued to outpace the growth in labour force, thanks to the favourable economic growth. We believe domestic demand in 2024 will remain resilient given the robust labour market conditions which have matched pre-pandemic levels.

Sustained expansion in domestic economy

Within the Services sector (59% of 4Q23 GDP; +4.2% y-o-y), the Wholesale & Retail Trade sub-sector grew by 4.4% y-o-y (vs 5.4% in 3Q23) while the Transportation and Storage sub-sector remained strong at 12.2% y-o-y (vs 12.8% in 3Q23). Apart from continued strength in household spending, continuous improvement in the tourism industry also contributed to the growth momentum in the Services sector as international passenger traffic at KLIA recovered to 78% of pre-pandemic level in 4Q23 (77% in 3Q23). Meanwhile, the Mining sector is the other outperformer with a 3.8% y-o-y growth due to improvement in natural gas and oil production.

External demand dragged manufacturing sector

The Manufacturing sector declined by a weaker-than-expected 0.3% y-o-y in 4Q23 (vs -0.1% in 3Q23) due to continued weakness in E&E amid the tech downcycle, offsetting resilient growth in domestic-oriented industries.  Nevertheless, 4Q23 manufacturing sector climbed 3.2% q-o-q, marking two successive quarterly expansions. We are encouraged by the improving trend of global semiconductor shipments as well as positive trade data among key Asian trading hubs. Confidence indicators among manufacturers are also pointing toward a recovery in 2024. Therefore, we believe Malaysia’s manufacturing sector should register a marked improvement in 2024, leveraging on its diversified export base and deep integration into global supply chain.

Maintain 2024 GDP growth of 4.3%

Despite the weaker growth momentum in 4Q23, Malaysia could take comfort from the resilient domestic demand as private consumption continues to be the key growth driver, underpinned by robust labour market and strong economic and social activities, especially tourism-related activities. Meanwhile, private investment is expected to benefit from improved external environment and positive response to the NETR and NIMP 2030 while the government continues with its expansionary fiscal policy to drive economic growth.