By Ying Xian Wong


Malaysia's economy ended 2023 on a down note, with growth slowing and exports contracting sharply as the country grappled with a tough global economic environment and weak commodity prices.

Advance gross domestic product estimates for the fourth quarter and trade data for December both painted a gloomy portrait of the Southeast Asian country, falling short of market expectations.

The GDP estimates, released by the Department of Statistics on Friday, showed growth of 3.4% in the last three months of 2023, indicating full-year growth of 3.8%. That compares with the blistering 8.7% expansion notched in 2022 amid a postpandemic rebound aided by government stimulus and a positive base effect.

Trade figures released at nearly the same time showed exports slumping 8.0% for the year and 10% in the final month of 2023. That contrasts with the 25% rise in exports seen in 2022.

The results undershot the predictions of economists in a Wall Street Journal poll, which had tipped fourth-quarter growth of 4.4% and a 3.7% on-year drop in exports for December.

The Ministry of Investment, Trade and Industry attributed the weak trade performance to soft commodity prices, notably for crude palm oil, petroleum and liquefied natural gas. "Geopolitical uncertainties such as the United States (US)-China, Russia-Ukraine and Middle East conflicts also took a toll on the global economy and dampened demand for Malaysian products while high global inflation eroded consumer purchasing power in importing countries," it said.

The decline in exports contributed to the "modest economic performance" in 2023, the Department of Statistics said. It also flagged the weak performance of the manufacturing sector, which grew just 0.8% versus the 8.1% recorded in 2022.

Reactions to Friday's releases were mixed.

The Malaysian economy is "still in the shade of trade woes," economists at HSBC Global Research wrote in a note.

However, it looks poised to benefit from an upturn in the technology cycle, they said. "Even though it [the upturn] may be mild, we expect growth to accelerate to 4.5% in 2024," economist Yun Liu said.

Goldman Sachs economists meanwhile lowered their estimate for 2024 growth to 4.0% from 4.5% following the lackluster GDP data. Still, they raised first-quarter sequential growth views, expecting "some payback" from the weakness of the fourth quarter, Rina Jio, Jonathan Sequeira and Andrew Tilton wrote in a note.

Capital Economics thinks economic activity will stay subdued in the near term, constrained by high interest rates, a cooling labor market, tepid foreign demand and weakness in commodity prices.

In a note, economist Shivaan Tandon writes that the services sector--a key driver of growth in 2023--looks set to struggle.

Friday's data showed a slowdown in service-sector growth both for the quarter and for the year. The fourth-quarter reading came in at 4.7%, lower than the 5.0% expansion seen in the third quarter, and fell to 5.4% for the year from 10.9% in 2022.

Tandon also sees fading economic support from tourism as the recovery matures, and warns that a softening labor market could weigh on domestic-oriented services activity.

"The recent deceleration in employment and wage growth should feed through to lower consumption growth in the coming months," he added.

Brighter days could still be ahead for the trade-focused economy.

The Ministry of Investment, Trade and Industry said Friday that it sees scope for the country's trade performance to recover in 2024 as global trade rebounds.

Though 2024 will "be a year of significant political changes, with major elections scheduled to take place in our key trading partners," the ministry said exports are forecast to rise 5.1%.

Final fourth-quarter GDP data is due February 16, but before then, eyes will be on next week's central bank meeting. With inflation figures also due before Bank Negara Malaysia meets, observers will be wondering if the data releases will spur any policy action.

"Despite today's weaker-than-expected GDP print, we do not expect this would warrant BNM to ease next week," the HSBC economists said. They continue to expect the bank will stay on hold through 2024, but note that "any hints of BNM's forward guidance will be closely watched."


Write to Ying Xian Wong at yingxian.wong@wsj.com


(END) Dow Jones Newswires

01-19-24 0417ET