Despite facing some headwinds, Malaysia's economy posted a strong growth in Q3, backed by robust manufacturing and export performance.
Malaysia's economy demonstrated steady growth in the third quarter of the year, showing notable strength in manufacturing and exports, although some sectors faced headwinds due to weaker mining output and a slowdown in services.
Solid Growth Despite Challenges
According to advance estimates from the Department of Statistics Malaysia, the economy expanded by 5.3 percent year-on-year in Q3. This marks a slight decline from the 6 percent growth recorded in Q2. For the first nine months of the year, the GDP growth stood at 5.5 percent, an improvement from 4.8 percent in the same period last year.
Economist Lavanya Venkateswaran from OCBC noted that the third-quarter growth aligns well with the bank’s forecast of 5.2 percent for the full year. Meanwhile, Bank Negara Malaysia projects a full-year growth range between 4.5 and 5.5 percent.
However, challenges loom in Q4, with projections from UOB hinting at a potential moderation in growth. Contributing factors include a higher comparison base and ongoing disruptions related to El Nino, alongside external issues such as geopolitical tensions and global market fluctuations.
Manufacturing Performance Outpaces Mining
In terms of sector performance, manufacturing growth surged to 7.5 percent, up from 7.3 percent in Q2. This rise was largely driven by robust performance in electrical and electronics (E&E) as well as optical products, alongside gains in petroleum, chemicals, rubber, and plastics.
Conversely, the mining and quarrying sector saw a decline of 4.9 percent, following a 9.2 percent increase in the previous quarter, primarily due to reduced crude oil and condensate production.
Growth in construction eased to 6 percent from 6.5 percent, while the agricultural sector rebounded with a 1.3 percent growth compared to a prior contraction of 3.7 percent.
Export Sector Thrives
September's export figures were particularly impressive, rising by 54.5 percent year-on-year to reach RM215.1 billion—marking the fastest growth in over five years. Manufactured shipments alone hit an all-time high of RM191.6 billion.
Electrical and electronics products contributed significantly to this increase, amounting to RM45.1 billion. This growth trend in E&E and other optical and scientific equipment indicates sustained demand, driven in part by investments in advanced electronics and artificial intelligence.
MBSB Research highlighted that the solid performance of E&E exports is likely to bolster overall export growth, although potential risks remain from ongoing geopolitical tensions and rising energy costs.
Imports Reflect Production Demand
On the import side, Malaysia saw a 52.7 percent increase year-on-year in September, totaling RM181.4 billion. Notably, intermediate goods accounted for a large share of these imports, with a 69.6 percent increase to RM92.1 billion.
Capital goods imports rose by 20.9 percent to RM22.3 billion. These trends indicate robust demand for production inputs, although the data does not clarify whether this growth resulted from higher prices or increased volumes.
Inflation Trends and Monetary Policy Outlook
Inflation rates saw a slight easing, with the headline inflation dropping to 1.8 percent in September from 1.9 percent in August. Core inflation, however, remained steady at 1.7 percent. While food inflation increased to 1.8 percent, transport inflation rose to 2.5 percent.
In light of these conditions, analysts from OCBC have revised their full-year inflation forecast downward to 1.9 percent. The economy's resilience and potential growth from Budget 2027's initiatives may lead Bank Negara Malaysia to consider raising interest rates as early as November.
While the economic outlook remains optimistic due to strong growth signals, it appears that Bank Negara Malaysia is faced with complex choices regarding potential monetary policy adjustments in the coming months.
