Bank Negara Malaysia: Domestic Demand Will Be Supported By Employment Market

In Malaysia, rising wages and steady employment, particularly in domestic-focused industries, are assisting with household expenditure.

According to the Central Bank of Malaysia (Bank Negara Malaysia, or BNM), slower global demand and a drop in commodity production had an impact on Malaysia’s economic development in the second quarter of 2023. As a result, it anticipates that domestic demand will continue to support growth despite the adverse foreign situation.

• This was said along with an explanation of how the global economy does continue to grow as a result of sturdy domestic demand and favourable labour market conditions. The prolonged electrical and electronics (E&E) downcycle, which is weighing on global commerce, persistently high core inflation, increasing interest rates, and rotation of spending from goods to services are just a few of the reasons weighing down global GDP.

• China’s slower-than-expected economic growth,

• Advanced economies’ core inflation is slowing down, but it is still higher than average.

As a result, the Bank Negara Malaysia Monetary Policy Committee (MPC) chose to keep the Overnight Policy Rate (OPR) at 3% during its meeting on September 7, 2023. The statement said, “Monetary policy stance is likely to remain tight for most central banks. The economic outlook is nevertheless vulnerable to negative surprises related to inflation, geopolitical tensions, weaker development in the world’s major countries, and a severe tightening of financial market conditions.

Related link: Malaysia’s Economic Expanded Moderately in Q2 2023

In the words of BNM, “At the current OPR level, the monetary policy stance remains supportive of the economy and is consistent with the current assessment of the inflation and growth prospects.”

In Malaysia as a whole, BNM said that sustained job creation and salary growth, particularly in domestic-oriented industries, continue to support household expenditure. Among other recent and upcoming advancements are:

• Traveller spending and arrivals are anticipated to increase.

• Investment activity will be aided by the ongoing implementation of long-term infrastructure projects and catalyst projects under the recently unveiled national master plans.

• Despite ongoing loan growth, domestic financial circumstances are nevertheless favourable for financial intermediation.

Meanwhile, under the more mild cost conditions, headline and core inflation have continued to decline in accordance with predictions. Due in part to the higher base from the second half of 2022 and the ongoing slowing momentum of price increases, this moderating trend would most certainly persist in the second half of 2023. 

According to the Central Bank, these elements will support the growth momentum through 2024.

“While the growth outlook is subject to downside risks resulting from weaker-than-expected external demand and larger and prolonged declines in commodity production, upside risks primarily emanate from stronger-than-expected tourism activity, a stronger recovery from the E&E downcycle, and faster implementation of existing and new projects,” the authority continued.