KUALA LUMPUR: Malaysia's 2023 economic growth of 3.7 per cent may have fallen short of the official forecast of 4.0 per cent but it still represents a commendable performance.
Economists said this was in light of the performance of several advanced economies such as United Kingdom, Germany and Japan which had slipped into technical recession.
The UK's economy posted a 0.3 per cent contraction in the final quarter of the year while Germany's gross domestic product (GDP) declined 0.3 per cent in 2023 compared to 2022, which increased concerns about the deterioration of Europe's largest economy.
Singapore's economic growth plunged from 3.8 per cent in 2022 to 1.1 per cent in 2023, while Australia's economy rose 1.5 per cent in 2023.
Other regional countries with GDP growth were Indonesia (5.05 per cent), Singapore (1.1 per cent), the Philippines (5.6 per cent), Thailand (2.5 per cent) and Vietnam (5.05 per cent).
"Weaker fourth quarter growth has also been reported among neighbouring countries with output and demand in most economies negatively impacted by elevated inflation, high interest rates, geo-political conflicts and reduced global trade and investment flows," Sunway University economics professor Dr Yeah Kim Leng told Business Times.
Malaysia's GDP eased to 3.7 per cent in 2023, following strong growth of 8.7 per cent registered in the previous year, due to slower global trade, global tech downcycle, geopolitical tensions and tighter monetary policies.
The GDP expanded by 3.0 per cent in the fourth quarter of 2023, which is below the consensus of 3.4 per cent.
Economists pointed out that the fear of the country's economy flipping into recession seems like a stretch to them as there are confluence of supporting and resilience factors that can sustain the country's growth in the long term.
Yeah said Malaysia's GDP growth is expected to recover to 4.6 per cent in 2024 on account of resilient domestic demand and pick up in external demand that is supported by tech upcycle and stronger tourism activities in line with Bank Negara Malaysia's expectations.
"The stronger growth momentum anticipated stems from the continuing infrastructure and industrial projects as well as robust capacity expansion as evidenced by the steady pace of capital goods imports averaging 8.0-9.0 per cent annually over the last three years," he said.
Yeah also said the rise in labour force participation is a good indicator of a healthy economy and resilience of aggregate private consumption which represents 60 per cent of the GDP.
Tradeview chief executive officer Ng Zhu Hann said after announcing the two very important economic policies which are the National Energy Transition Roadmap and The New Industrial Master Plan 2030, execution and implementation is key to building a resilient economy in 2024.
"Foreign investors will return to our country if the government can show they are serious in execution and implementation.
"This will make us more competitive to our regional peers," Ng added.
On the economic impact on the ringgit and whether there is a need for intervention, Malaysian Institute of Economic Research economist Dr Shankaran Nambiar said the currency has been trending downwards, but there is no need for intervention.
"The fundamental issues affecting the ringgit should be addressed, rather than taking aggressive steps."
Nambiar said imposing a peg or capital controls will send a negative signal.
"Aside from the cost of defending the ringgit, we will have to deal with a loss of confidence and the credibility of policy.
"The latter will linger on long after we have stabilised the ringgit. We should persist in restoring confidence in our markets, our policy credibility and seriousness of reform," said Nambiar.
Professor of economics Dr Geoffrey Williams from the Malaysian University of Science and Technology said the fourth quarter performance is the biggest quarterly contraction since the Covid-19 pandemic and in part it is driven by the impact of bad policies during that period, inherited by the current Unity Government.
Almost half of the growth is due to a rise in inventories or stocks, he added.
"So firms are producing products that are not being sold due to low domestic and international demand," said Williams.
Among the components of GDP, private consumption contracted 3.0 per cent in seasonally adjusted terms, having declined 0.7 per cent in the third quarter.
This reflected a weakness in consumer spending as low incomes hold back consumption.
"The RM100 e-wallet scheme has not helped," he remarked.
On the bright side, Williams said the exports increased 1.0 per cent in Q4 following an increase of 0.6 per cent in Q3, pushed by a weaker ringgit.
"There should be no intervention in the exchange markets because this disappointing GDP figure is not caused by the exchange rate," he added.
Williams proposed several suggestions for the government to enhance economic conditions and urged against introducing tax hikes in the current environment.
He recommended postponing all planned tax increases in 2024 Budget especially the rise in the Sales and Service Tax (SST) and doing a comprehensive review of taxes by October in preparation for 2025 Budget.
Williams said the economic reforms, including the Padu scheme, subsidy rationalisation, implementation of the progressive wage model and pension reform must be brought forward.
He suggested postponing costly policies for now like the NIMP and NETR, redirecting spending towards income enhancement, and emphasising renewed supply-side reforms.
Williams said government interference in the economy should stop and business should be deregulated and responsible privatisation of GLC subsidiaries should be introduced.
"There needs to be a low-tax, low-regulation economy with agile, competitive, market-driven reforms," he added.
