{"id":6521,"date":"2024-02-26T14:29:55","date_gmt":"2024-02-26T19:29:55","guid":{"rendered":"https:\/\/arc-group.com\/report\/malaysia-economic-update-report-q4-2023\/"},"modified":"2025-03-20T09:45:57","modified_gmt":"2025-03-20T14:45:57","slug":"malaysia-economic-update-report-q4-2023","status":"publish","type":"report","link":"https:\/\/arc-group.com\/report\/malaysia-economic-update-report-q4-2023\/","title":{"rendered":"Malaysia Economic Update Report, Q4 2023"},"content":{"rendered":"
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Malaysia’s economy grew in Q4 2023, with an optimistic outlook for 2024<\/h3>\n

In Q4 2023, Malaysia’s economy expanded by 3%, propelled by strong household spending and investment activity, despite lackluster exports. Despite facing challenges like subdued external demand and inflationary pressures, the outlook for 2024 remains positive. This is supported by robust domestic expenditure and the anticipated resurgence in external demand, which will sustain ongoing growth.<\/h4>\n

In Q4 2023, Malaysia\u2019s economy expanded by 3% YoY<\/strong>, sustaining its growth trend but slipping from 3.3% in the preceding quarter. The central bank attributed this slowdown to a demanding external landscape, pointing to slower global trade, geopolitical tensions, tighter monetary policies, and a global tech downturn.<\/p>\n

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Exports stayed restrained as a result of persistent sluggishness in external demand amidst increased imports. Exports experienced a 6.3% decline, while imports decreased by 2.9% in Q4. Consequently, net exports registered a further decline of 35.6%, compared to a 22.7% decrease in the previous quarter. However, the reopening of China\u2019s borders can serve as a counterbalance to external uncertainties stemming from potential recessions in the European Union (EU) and the United States.<\/p>\n

Headline inflation declined further, reaching 1.6% in the quarter, down from 2.0% in the previous term, partly due to reduced fresh food prices. Besides that, the decrease in core inflation was primarily influenced by a reduction in services sub-segments, notably food-away-from-home and repair and maintenance of personal transport. The pervasiveness of inflation continued to decrease, with the share of Consumer Price Index items experiencing monthly price increases moderating to 36.3% during the quarter, down from 40.8% in Q3 2023.<\/p>\n

Notably, household spending received a boost from a reduction in cost pressures and improving labor market conditions with unemployment rate returning to pre-pandemic levels at a remarkable low of 3.3%. Household spending, constituting 58.9% of GDP, expanded by 4.2% in Q4 2023, driven by increased spending on transport, food, non-alcoholic beverages, and housing, water, electricity, gas, and other fuels. Meanwhile, the growth in investment activity was bolstered by the progressive realization of multi-year projects and the expansion of capacities by various firms.<\/p>\n

The commodities sector experienced robust growth, supported by increased oil and gas production and expansion in the agriculture sector amidst enhanced labor availability. The services sector notably contributed positively, growing at a rate of 4.2%, adding to the momentum. While growth was observed across all major sectors in the Q4, the construction sector saw its expansion slow to 2.5% YoY, down from 7.2% in the previous quarter. Additionally, the manufacturing sector also remained subdued due to persistent weaknesses in the electrical and electronics industry. In detail, the manufacturing sector contracted by 0.3% in the Q4, maintaining the decline observed in the previous period\u2019s 0.1% downturn.<\/p>\n

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Overall<\/strong>, Malaysia\u2019s economic performance in 2023 showcased a mixture of highs and lows. Malaysia\u2019s GDP growth in 2023 mirrors the moderate growth observed in other ASEAN countries. The central bank maintained its benchmark overnight policy rate at 3.0%, pointing to enhancements in domestic demand and labor market conditions. It anticipates that 2024\u2019s growth will be buoyed by a sturdier domestic spending landscape and an uptick in external demand, particularly in the technology sector.<\/p>\n

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The labor market improved with favorable policy reforms<\/h3>\n

Malaysia’s labor market strengthened in Q4 2023, with more jobs and fewer unemployed. The labor force reached 16.97 million, and participation remained at 70.1%. Supported by domestic demand, policy reforms, and infrastructure projects, further recovery is expected. Increased foreign tourism and a global tech cycle upturn will likely drive growth in 2024.<\/h4>\n

Malaysia in Q4 2023 saw a robust labor market performance<\/strong>, indicating encouraging economic activity. The number of employed individuals continued to climb, signaling positive trends, while unemployment rates showed a decline. The labor force expanded slightly by 0.1%, reaching a total of 16.97 million people, with a labor force participation rate of 70.1%. The stable labor market outlook is primarily upheld by domestic demand, reinforced by the resurgence of tourism activities, continuous foreign direct investment (FDI) inflows, the potential turnaround in international trade, ongoing infrastructure projects, all contributing to the maintenance of job opportunities.<\/p>\n

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The Malaysian government is set to launch a new program aimed at boosting wages for low-income workers amidst increasing living expenses and growing inequality within the Southeast Asian nation. The Progressive Wage Policy, designed to incrementally raise wages for employees according to their skills, experience, and performance, is scheduled to commence in June 2024. The pilot project will engage 1,000 companies in its implementation. Strategic policy reforms<\/strong>, including the forthcoming progressive wage mechanism, along with the rigorous implementation of national blueprints and job-related initiatives outlined in Budget 2024 , are anticipated to bolster the labor market recovery in both the short and medium terms. Budget 2024, also known as the second Madani Budget, mirrors the government\u2019s steadfast commitment to enhancing both the national economy and the welfare of its citizens. At USD 89.8 billion, the Budget 2024 is the largest supply bill to be tabled.<\/p>\n

The projected increase in foreign tourist arrivals and the anticipated recovery in the global tech cycle serve as further catalysts for growth and the labor market\u2019s rebound in 2024.<\/p>\n

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Manufacturing sector’s capacity utilization declined YoY yet gained back to Q1-2024 level<\/h3>\n

In Q4 2023, Malaysia’s manufacturing sector\u2019s capacity utilization decreased to 79.8%. Specific sub-sectors, such as petroleum, chemical, rubber, and plastic products, experienced significant declines, while others, like non-metallic mineral products, basic metals, and fabricated metal products, reached peak performance.<\/h4>\n

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In Q4 2023, the manufacturing sector in Malaysia operated at a capacity of 79.8%, showing a YoY decrease of 0.4%.<\/strong> The decline in production capacity was driven by factors such as subdued demand, inadequate material supply, and the need for repairs and maintenance of machinery and equipment.<\/p>\n

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The diminished capacity utilization<\/strong> within the manufacturing sector can be chiefly attributed to declines in specific sub-sectors: petroleum, chemical, rubber, and plastic products experienced a notable decrease of 4.2%, while electrical and electronic products saw a decline of 0.5%. In terms of manufacturing industry capacity utilization by sub-sector, the manufacture of non-metallic mineral products, basic metals, and fabricated metal products led the pack with the highest capacity utilization rate at 83.2%, marking a significant YoY increase of 4.5%. Following closely behind was the transport equipment and other manufacture sub-sectors, which achieved a capacity utilization of 82.2%.<\/p>\n

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Six states have demonstrated a capacity utilization exceeding the national rate. These states include Labuan, which recorded the highest capacity utilization at 95.6%, followed by Negeri Sembilan, Pahang, Selangor, Melaka, and Johor. Besides that, six states have experienced a YoY decrease in capacity utilization, consisting of Kedah, Kelantan, Melaka, Perlis, Terengganu, and Sarawak.<\/p>\n

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In general<\/strong>, there was a notable decrease in the capacity utilization of export-oriented industries in 2023, dropping by 2.1% YoY to 78.3%. Meanwhile, domestic-oriented industries showed a positive trend, with a 1.1% YoY increase, reaching a capacity utilization rate of 81.4%.<\/p>\n

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Government’s development initiatives boost construction sector growth potential<\/h3>\n

The construction sector continued its upward trajectory for the seventh consecutive quarter, driven primarily by an 18.0% increase in the Civil Engineering sub-sector. This growth, albeit with mixed performances across sub-sectors, is underpinned by the government’s expansionary fiscal policies and ongoing projects in both the private and public sectors.<\/h4>\n

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In the seventh successive quarter, the construction sector sustained its upward momentum, registering a 6.8% YoY increase to attain a value of USD 7.2 billion in completed works during Q4 2023. This performance marks a continuation from a 9.6% growth in the preceding quarter. The growth is significantly supported by the government\u2019s commitment to expansionary fiscal spending, alongside sustained progress in initiatives spearheaded by both the private and public sectors.<\/p>\n

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The principal driver of the constructor sector\u2019s expansion in Q4 2023 was the Civil Engineering sub-sector, which experienced a significant 18.0% YoY increase, a slight enhancement from the 17.1% growth observed in Q3 2023. Conversely, the pace of growth in the Residential Buildings and Special Trade Activities sectors decelerated to 2.3% (down from 7.9%) and 0.3% (down from 16.2%), respectively. Notably, the Non-Residential Buildings sub-sector encountered a downturn, with a 1.9% contraction, a more pronounced decline compared to the 0.7% reduction recorded in Q3 2023.<\/p>\n

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41.9% of the construction sector\u2019s work done value was attributed to civil engineering. This segment was predominantly led by the construction of roads and railways, accounting for USD 1.6 billion, and utility projects, contributing USD 1.1 billion. On the other hand, special trade activities, contributing 9.6% to the total value, were primarily driven by electrical installation, plumbing, heating, and air-conditioning installation, and site preparation activities.<\/p>\n

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The construction sector is anticipated to maintain its upward trajectory, projecting an annual growth rate of 4.4% in 2024. This optimism is largely fueled by the financial allocations outlined in the 2024 Budget, as announced by Prime Minister Anwar Ibrahim in October 2023. The budget earmarks a total expenditure of USD 89.8 billion for 2024, marking a 1.5% increase from the 2023 Budget. It allocates USD 69.3 billion for operating expenses and USD 20.5 billion for development expenses. Looking ahead to the period from 2025 to 2027, the construction industry is poised for an average annual growth rate of 5.8%. This growth is expected to be propelled by investments in substantial transport, industrial, and renewable energy projects. Additionally, the government\u2019s initiative to implement the Public Private Partnership (PPP) 3.0 model, a refined mechanism designed to finance infrastructure projects under the 12th Malaysia Plan (12MP) spanning from 2021 to 2025, is set to further stimulate the sector\u2019s expansion.<\/p>\n

About this report<\/h2>\n

This report was compiled with contributions from the team of business experts across ARC Group\u2019s global offices.<\/p>\n

ARC Group is an advisory firm specialised in supporting western companies operating in Asia and beyond. Our mission is to bridge the gap between global business ecosystems and key markets worldwide. Through our Management Consulting division, we provide services within corporate strategy<\/a><\/span><\/span>, business transformation<\/a><\/span><\/span>, operations<\/a><\/span><\/span>, sustainability<\/a><\/span><\/span>, growth, sales & marketing<\/a><\/span><\/span>, and digital & AI solutions<\/span><\/a><\/span>. We work across a wide range of industries, including automotive & mobility<\/a><\/span><\/span>, energy & environment<\/a><\/span><\/span>, consumer goods & retail<\/a><\/span><\/span>, food & beverage<\/a><\/span><\/span>, technology, media & telecom<\/a><\/span><\/span>, advanced industry & materials<\/a><\/span><\/span>, financial services<\/a><\/span><\/span>, and healthcare, medtech & biotech<\/a><\/span><\/span>.<\/p>\n

If you are interested in exploring how we can support your business, reach out through our contact page<\/a><\/span><\/span>, or leave your email below for a representative to get in touch directly:<\/p>\n

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