KUALA LUMPUR: Malaysia’s economy outperformed expectations in the fourth quarter, partly thanks to strong domestic demand, and the central bank said it expected the country to avoid a recession amid a global slowdown.

Bank Negara Malaysia (BNM) said gross domestic product (GDP) in October-December had been 7.0% higher than a year earlier, though it saw growth moderating in 2023.

Economists polled by Reuters had expected BNM to report that fourth-quarter gross domestic product had been 6.6% higher than in the same period of 2021. The result was much lower than the 14.2% seen in the third quarter, but that earlier figure had reflected a rebound from a pandemic-suppressed economy in 2021.

GDP for all of 2022 was 8.7% higher than in 2021, the fastest full-year growth in 22 years and surpassing the government’s forecast of 6.5% to 7%.

But fourth-quarter GDP was down 2.6% from the previous quarter, when it had risen 1.9% from April-June. The data is seasonally adjusted.

Looking ahead, BNM flagged risks to growth such as further escalation of geopolitical tensions, re-emergence of significant supply chain disruptions and higher interest rates globally.

But it said it expected the reopening of China’s borders to drive a recovery in tourist arrivals. Also, strength in domestic demand would offset weakness in demand for Malaysian products from a global economy slowing under the weight of interest rate rises.

“Malaysia will not go into a recession,” BNM Governor Nor Shamsiah Mohd Yunus told reporters.

“The economy will continue to grow at a much more moderate pace because of the slower external demand, but it will still be supported by domestic demand.” BNM said domestic demand had supported fourth-quarter GDP, as had exports of electrical and electronics goods.

The government expects growth in full-year GDP to moderate to between 4% and 5% this year, though Nor Shamsiah said new economic forecasts might be announced when Prime Minister Anwar Ibrahim unveils a revised budget for 2023 on Feb. 24.

BNM expected that over the course of 2023 headline and core inflation would moderate but remain elevated, Nor Shamsiah said. Headline and core inflation averaged 3.3% and 3.0% respectively in 2022.

Last month, BNM unexpectedly kept its benchmark interest rate unchanged, flagging risks to economic growth after four consecutive rate hikes last year.

Nor Shamsiah said the decision to maintain the level of the overnight policy rate (OPR) allowed the bank to assess the impact of its OPR adjustments on inflation and the economy. “This would give us better clarity on inflation and economic output,” she said.