How Malaysia's Economy Doing So Far?

1. Gross Domestic Product ("GDP")

Served as a significant economic indicator to Malaysia, GDP refers to the total monetary value of all goods and services produced within a country. It measures the economic output of an economy and its overall health and growth.

Based on the latest Q3 2023 Malaysia GDP release,

From QoQ's perspective, Malaysia recorded an expansion of 2.6% GDP growth in Q3 2023, marking its best quarter of this year, will GDP continue to achieve higher growth for the last quarter of 2023?

In addition, GDP YoY showed that Malaysia rebounded from a nearly 2-year low of expansion of 2.9% in Q2 2023 to 3.3% in Q3 2023, which added another good sign for Malaysia to sustain its economic growth in such a challenging global and domestic environment this year.

What contributes to Malaysia's GDP? Let's have a look at the latest GDP breakdown by sector in value percentage to total GDP based on Q3 2023 Malaysia GDP:

The top contributor goes to the services sector, which accounts for nearly 60% of total GDP. This includes various industries such as finance, tourism, transportation, healthcare, and education.

The second largest contributor to be manufacturing sector, contributing nearly 23% of total GDP. Being the major export sector of Malaysia, the manufacturing sector includes industries that produce electronics, electrical products, machinery, textiles, and petrochemicals.

2. Balance of Trade

Balance of trade refers to the difference between a country's total exports and imports of goods and services over a specific period. In other words, it is the value of a country's exports minus its imports.

In Oct 2023, Malaysia recorded a trade surplus of MYR12.9 billion, the lowest since Apr this year as exports dropped 4.4% YoY to MYR 126.2 billion due to declined sales in mining (-21.9%) and manufacturing (-3.5%).

If we look at the trend of Malaysia's balance of trade for the past 5 years:

Trade surplus saw a strong rebound post-COVID-19 and entered sideway since then. However, the trade surplus was still able to be sustained above the average level before Covid 19, signaling that Malaysia is maintaining a good balance of trade so far, hoping for a pick up from the main export sectors such as manufacturing.

3. Manufacturing Purchasing Managers' Index ("PMI")

PMI is an economic indicator that measures the health of the manufacturing sector of an economy. Manufacturing PMI is calculated by surveying purchasing managers at manufacturing companies about their current and future production plans, business conditions, and supply chain activities.

A score above 50 indicates expansion in the manufacturing sector, while a score below 50 indicates contraction.

Malaysia's manufacturing PMI trend from year 2018 to present (Oct 2023):

PMI had been in slight contraction (near or below 50) prior to Covid 19, fell to the lowest during Movement Control Order ("MCO") in the year 2020, followed by a strong rebound post-Covid 19 then continued to decelerate to the present.

The Latest Oct 2023 PMI stood at 46.8 (contraction), pointing to the 14th straight month of drop in the sector as new orders moderated while production eased at the fastest since Jan 2023 due to a shortage of manpower in the manufacturing sector.

4. Inflation Rate

Inflation rate refers to the rate at which the general level of prices of goods and services in an economy increases over a specific period. It is typically calculated as a percentage change in the Consumer Price Index (CPI), which measures the average price of a basket of goods and services consumed by households.

Central banks and policymakers carefully monitor inflation rates since it has a significant impact on the overall health of the economy. High inflation rates can lead to decreased consumer spending, reduced investment, and economic instability. On the other hand, low inflation rates can lead to deflation, which can result in lower economic growth and higher unemployment.

Malaysia inflation rate trend from 2018 to Sep 2023:

The annual inflation rate in Malaysia slowed to 1.9% in September 2023 from 2% in the previous month, below market forecasts of a 2.2% rise. It was the lowest inflation rate since March 2021, with prices of food rising the least in 19 months

However, the overall inflation rate is still a higher range compared to before the COVID-19 period

Interest rates and inflation rates are closely related, and changes in one can affect the other. Here's how interest rate affects the inflation rate:

When central banks increase interest rates, it will make borrowing more expensive for individuals and businesses. This leads to reduced spending and borrowing, which can slow down economic growth and reduce demand for goods and services. On the other hand, when central banks decrease interest rates, it becomes cheaper to borrow money, and consumers will be encouraged to spend more.

In summary, higher interest rates tend to slow down inflation, while lower interest rates tend to stimulate it.

Let's have a look at the relationship between Malaysia's interest rate and inflation rate:

The Overnight Policy Rate ("OPR") is the benchmark interest rate that is set by Bank Negara Malaysia ("BNM"). As of Nov 2023, Malaysia's interest rate was marked at 3%.

To compare the inflation rate with an interest rate, we can see that BNM reduces its interest rate when the inflation is low, especially during COVID-19, and starts raising the interest rate when the inflation rate goes above 4% in year 2022.

Source: Moomoo, Trading Economics, Department of Statistics Malaysia