KUALA LUMPUR: Malaysia recorded a gross domestic product (GDP) growth of 3.7 percent in 2023, after an expansion of 3.0 percent in the fourth quarter of the year, supported by continued recovery in economic activity and labor market conditions.

Bank Negara Malaysia (BNM) said growth moderated amid a challenging external environment last year, following the strong growth of 8.7 percent registered in 2022.

On a quarter-on-quarter seasonally-adjusted basis, the economy contracted by 2.1 percent compared with a growth of 2.6 percent in Q3.

“On the domestic front, despite the lapse of large policy support provided as the economy started to open up in 2022, the continued recovery in economic activity and labor market conditions supported growth in 2023,” the central bank said in a statement today.

It said that the current account surplus in 2023 was sustained at 1.2 percent of GDP, supported by a diversified export structure across markets and products, despite the challenging external environment.

“The strength in external position is also reflected in the external debt, which declined to 68.2 percent of GDP in 2023 (Q3: 69 percent), and a higher net international investment position at 6.6 percent of GDP in 2023 (Q3: 5.2 percent).

BNM highlighted that importantly, the external debt remains manageable given the favorable maturity and currency profiles.

It said one-third of the external debt is denominated in ringgit, limiting currency risk, while around 70 percent of debt has medium and longer-term tenures.

Foreign currency borrowings are also subject to BNM’s prudential requirements and continue to consist mainly of concessionary intra-group loans.

In Q4, household spending remained supported by improving labor market conditions and easing cost pressures while unemployment rate declined to the pre-pandemic level of 3.3 percent and the labor force participation rate was at a historic high in 2023.

Meanwhile, growth in investment activity was underpinned by the progressive realization of multi-year projects and capacity expansion by firms.

Exports, however, remained subdued due to prolonged weakness in external demand amid stronger imports. On the supply side, there was a broad-based expansion.

As for the ringgit, the currency appreciated by 2.1 percent against the US dollar in Q4, in line with regional currencies following a broad-based depreciation in the US dollar.

“BNM will continue to ensure sufficient liquidity to support the orderly functioning of the domestic foreign exchange market,” it noted.

On headline inflation, the central bank said it continued to decline to 1.6 percent during the quarter (Q3: 2.0 percent) contributed by the moderation in fresh food inflation and core inflation. 

For 2023 as a whole, headline inflation declined to 2.5 percent from 3.3 percent in 2022, while core inflation averaged at 3.0 percent.

For 2024, it said growth will be driven by resilient domestic expenditure and improvement in external demand, with the International Monetary Fund projecting a rebound in global trade growth from 0.4 percent in 2023 to 3.3 percent in 2024.

“Together with the tech upcycle, the stronger external demand and continued improvement in the tourism sector will provide support to Malaysia’s exports,” it said.

On the domestic front, household spending will be supported by continued employment and wage growth.

Investment activity will be underpinned by further progress of multi-year projects, by both the private and public sectors, as well as the implementation of catalytic initiatives under the various national master plans.

Improvement in tourist arrivals and spending are expected to continue.

“The growth outlook remains subject to downside risks stemming from weaker-than-expected external demand and larger declines in commodity production.

“Nonetheless, there are upside risks to growth emanating from greater spillover from the tech upcycle, stronger-than-expected tourism activity and faster implementation of existing and new projects,” it said.

BNM also projected headline and core inflation to remain modest in 2024.

“In 2024, inflation is expected to remain modest, broadly reflecting stable cost and demand conditions.

“However, the inflation outlook remains highly subject to changes to domestic policy on subsidies and price controls, as well as global commodity prices and financial market developments.”