She said the ringgit’s depreciation this year has been driven by the strong US dollar. “As such, it does not mean that the Malaysian economy is weak or in a crisis, and should not be taken as a simple barometer of the health of the economy,” she said.
“An economic crisis is usually associated with a severe contraction in gross domestic product (GDP) growth, high rates of unemployment, widespread closure of businesses, and a breakdown in financial intermediation. We do not see these in the indicators,” Nor Shamsiah said when presenting the Q3 economic data today.
She stated that the GDP has been growing for four consecutive quarters since Q3 last year. Unemployment rate has continued to decline for 14 consecutive months to 3.6% in September from 4.8% in July 2021, she added.
“Corporations and businesses’ financial performance remain healthy. The public continues to spend. Indicators such as retail and car sales have exceeded pre-pandemic levels. Furthermore, the banking system remains resilient and financing growth remains supportive of economic activity.
“Clearly, Malaysia is not in an economic crisis,” she said.
However, she also acknowledged that there still are some parts of the economy that have yet to return to pre-pandemic conditions.
Work will still need to be done for sectors like food and beverage, accommodation, construction, and mining which make up 20% of the economy. “Recovery needs to be more even,” she adds.
The governor also said the ringgit’s depreciation is benefitting the export-oriented sector. “While the dollar strength has raised the cost of imported goods, the ringgit’s depreciation has also allowed Malaysia to benefit from higher nominal export earnings.
“Malaysia’s gross exports have increased by around 30% in the first three quarters of this year supported by several factors, including external demand, export product prices and exchange rate valuation gains.”
Another source of relief for the economy is that the inflationary pressures may be abating. Nor Shamsiah stated that headline inflation has likely peaked for the year at 4.5% in Q3.
“This was largely driven by the base effect from the discount in electricity bills implemented last year. Notably, we have already seen a moderation in headline inflation to 4.5% in September from 4.7% in August. We expect headline inflation to continue moderating going forward upon dissipation of the base effect,” she added.
Nor Shamsiah said Malaysia’s growth is expected to normalise going into 2023, and projects the economy to expand between 4% and 5% amid a more challenging external environment.
“However, we are not expecting a recession,” she emphasised.
“A steady rise in employment levels and continued improvement in wages are supportive of spending. The continuation of existing and new infrastructure projects and higher tourist arrivals are expected to support growth in 2023,” she said.
Among the infrastructure projects are the East Cost Rail Link valued at RM50 billion, Light Rail Transit 3 worth RM16.6 billion, Central Spine Road worth RM7.3 billion and the Jendela Phase 2 to increase broadband access amounting to RM8 billion.
“The Malaysian economy is expected to remain on a steady growth path despite the weaker global growth outlook. What is important to secure our future growth prospects is to further strengthen our economic fundamentals and improve our resilience, while pressing on with the necessary structural reform measures,” she said.