Malaysia: GDP growth slows to a near-two-year low in Q2, undershooting expectations
GDP growth lost momentum in the second quarter, falling to 2.9% year on year, from 5.6% in Q1. Q2’s reading marked the softest growth since Q3 2021 and surprised markets on the downside.
On the domestic front, slowing private spending growth drove the overall deceleration, overshadowing the contribution of stronger growth in public spending and investment. Household consumption growth fell to 4.3% in Q2 (Q1: +5.9% yoy) as higher interest rates likely squeezed household budgets despite decreases in inflation and the unemployment rate. More positively, public spending bounced back, growing 3.8% in Q2 (Q1: -2.2% yoy). Moreover, fixed investment growth improved to 5.5% in Q2 from 4.9% in the prior quarter, supported by improvements in both the private and public sectors.
On the external front, exports of goods and services contracted 9.4% in Q2 (Q1: -3.3% yoy), marking the worst result since Q2 2020 amid the global electronics sector downturn and weak international demand. Similarly, imports of goods and services declined at a more pronounced pace of 9.7% in Q2 (Q1: -6.5% yoy).
Meanwhile, on a seasonally adjusted quarter-on-quarter basis, economic growth accelerated to 1.5% in Q2 from the previous quarter’s 0.9% expansion.
Looking ahead, our panel foresees GDP growth remaining broadly stable in Q3. Domestic demand should continue to expand, supported by government subsidies and lower inflation. Recovering tourist inflows and a projected recovery in the electronics sector later this year should support activity further. Nevertheless, still-weak external demand—particularly China’s sluggish recovery—will cap the overall improvement of the external sector. Meanwhile, high levels of household debt and a stronger-than-expected El Niño weather pattern pose downside risks to the outlook.