Tengku Zafrul had on March 8 said that the government targets a 20% year-on-year growth in approved investments for 2023.
PETALING JAYA: Trade-reliant Malaysia has to brace itself for more challenges, as the latest global growth downgrade by the International Monetary Fund (IMF) painted a grim picture of the world’s economic outlook.
Not only that, the country will have a tough time meeting its aggressive 20% growth target for investments, considering that multinational companies may put off or downsize their expansion plans.
With external pressures piling up, all eyes are on the government’s gameplan to mitigate the downside risks.
After a stellar run in 2022, experts said Malaysian exports are expected to grow slower this year as global demand slows, on the back of continued monetary tightening by central banks.
This is further exacerbated by the fact that the IMF is projecting an “especially pronounced” growth slowdown among advanced economies.
Bank Negara had already projected a modest exports growth of 1.5% for Malaysia in 2023, prior to the IMF’s global growth downgrade.
In comparison, the country’s gross exports grew 26.1% in 2021 and 25% in 2022. The average growth for 2015-2019 was 5.6%.
It is noteworthy that the IMF has revised downward its 2023 global growth to 2.8% from 2.9% previously. However, the growth is expected to settle marginally higher at 3% in 2024.
As for Malaysia, the IMF estimates the local gross domestic product (GDP) to grow by 4.5% in 2023 and 2024.
Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told StarBiz that the trade landscape has become increasingly challenging.
“The IMF did explicitly mention about risks related to banks in the United States, suggesting the scope for heightening economic uncertainties has become more visible.
“In that sense, the onus now is on the domestic demand whereby consumer spending and investment by the private and public sector will be critical for the overall growth this year,” he said.
Meanwhile, Centre of Market Education (CME) chief executive officer Carmelo Ferlito said that the IMF’s downward revision did not come as a surprise.
He added that CME had predicted a post-Covid-19 and inflation-led economic slowdown since 2021.
“(With the downgrade), there is indeed the risk for Malaysia to be affected,” according to Ferlito.
In its economic brief yesterday, MIDF Research said the latest projection by the IMF is more pessimistic than the one pencilled in earlier this year in January.
It added that the IMF foresees tighter monetary policy to combat inflation, deterioration in financial market conditions and geopolitical risks particularly in the European Union (EU).
The IMF downgraded several key economies, among others, Germany, Japan and India.
As for China, the IMF maintained its forecast of 5.2% for 2023 and 4.5% for 2024.
“The IMF expects the Chinese economy to enjoy the benefits of economic reopening and positive spill-over effects to be spread across the region.
“In line with that, the IMF raised the Asean-5 forecast from 4.3% to 4.5% for this year.
“Malaysia’s GDP growth is set to increase by 4.5% for 2023 and 2024.
“We opine the downward revision by the IMF is mainly influenced by the recent financial market uncertainties in the United States and the EU as well as unresolved war in Ukraine.
“Global GDP growth is still on an expansionary trajectory, particularly supported by the reopening of China and softening inflationary pressure,” stated MIDF Research.
Looking ahead, amid the softer global growth outlook, Bank Muamalat’s Mohd Afzanizam expects businesses to become more cautious, to some extent.
This in turn could adversely affect global foreign direct investment (FDI) flows, including Malaysia.
Nonetheless, he said that Malaysia could still attract investors, if the country sends the “right message”, such as the commitment to make foreign investors’ investing experience more seamless.
“Plus, with our decent infrastructure, readily available talent pool as well as pro-business policy adopted by the government, they might want to come here and invest,” he said.
On the other hand, CME’s Carmelo said that it is still “too soon to tell” whether FDIs into Malaysia would be affected by the slower global macroeconomic conditions.
“In fact, on one side we can see the government doing laudable efforts to attract FDIs - and the latest announcement by the Economic Minister Rafizi Ramli about faster procedures for expatriates is very welcome.
“We need to see this effort translated into actual policies, which, according to me, needs to target in particular the labour market and banking regulations,” he said.
According to Ferlito, the domestic labour market needs to move in the direction of a higher degree of international liberalisation by leveraging foreign talents.
As for banking regulations, he pointed out that it is extremely hard, if not impossible, for a complex international corporate structure to open a bank account in Malaysia.
This needs to be sorted out as part of the efforts to welcome more FDIs.
Yesterday, it was announced that the International Trade and Industry Ministry has been rebranded and will now be known as the Investment, Trade and Industry Ministry (Miti).
“This is in keeping with Miti’s function as the leader in driving and encouraging inflows of foreign investments, enhancing local investments, strengthening international trade and empowering sustainable industrial development,” the ministry said.
Miti minister Tengku Datuk Seri Zafrul Abdul Aziz had on March 8 said that the government targets a 20% year-on-year growth in approved investments for 2023.
“It is a tall order (to achieve 20% growth), given the challenges expected this year,” according to him.
In 2022, the country recorded approved investments totalling RM264.6bil (US$60bil), which translates to 4,454 projects and 140,370 job opportunities to be created.
