Malaysia posted a firmer gross domestic product (GDP) print of 3.3% in 3Q2023 (2Q2023: 2.9%), in line with the advanced estimate, as private consumption rose at a faster pace of 4.6% (2Q2023: 4.3%). Gradual recovery in the tourism industry, together with robust growth in local car sales and credit card purchases should underpin continued resilience in consumer spending in 4Q2023. Meanwhile, the latest October trade data showed some nascent signs of recovery, with exports improving to -4.4% compared to -13.8% in September on firmer manufacturing exports. Going forward, Malaysia’s export momentum will be supported by an anticipated recovery in the Chinese economy and a rosier outlook for the global semiconductor market.

The ringgit displayed signs of improvement against the greenback in November as the broad dollar weakness is driven by prospects of a potential conclusion to the US rate tightening cycle. Following uncertainties over the Middle East conflict, commodity prices and mixed outcomes in upcoming inflation indicators from advanced economies could heighten the ringgit’s volatility, compounded by a lack of domestic catalysts.

Following the Federal Reserve’s (the Fed) meeting in November, the upward momentum in US Treasury (UST) yields since July has reversed, dropping notably at the longer end, even after a brief uptick following the US credit rating outlook downgrade. The reversal in UST yields should support the local bond market along with the anticipated improvement in foreign flows, though volatility will persist as market expectations shift during later reassessments.

Central banks in advanced economies remained cautious in concluding their tightening cycle due to persistent inflation concerns. Despite the Fed’s pause decision, risk-on sentiment has surged with expectations of the end of the tightening interest rate cycle and more cuts in 2024 as key inflation and employment data came in cooler than expected. Concurrently, the stability of emerging markets will be influenced by the extent to which interest rate cuts are eventually delayed.

With the year-to-date inflation averaging 2.7%, the full-year 2023 inflation is estimated to fall within the Ministry of Finance’s (MoF) projected range of 2.5%-3.0%. Going forward, upside to inflation could stem from higher food prices and a weak ringgit. Overall, tightened monetary conditions and a challenging external environment could constrain domestic growth ahead. For now, 2023 GDP growth is on track to reach the MoF’s estimation of 4.0% (2022: 8.7%), based on potential support from oil prices, upside risk to exports, resilience in consumer spending, and a gradual recovery in tourism.