A poll of economists by Reuters from May 2 to May 9 estimated that the country’s economic growth to be just under 5% for 1Q23, dragged down by tepid consumption and declining exports. — Reuters
PETALING JAYA: Regional economists are predicting Malaysia’s gross domestic product (GDP) for the first three months of 2023 (1Q23) to hover around 4.8%, in preemptive projections ahead of Bank Negara’s official release of 1Q23 GDP figures tomorrow.
The general consensus is that growth has slowed in 1Q23, although this has been compared with a bumper 2022 that saw the GDP expansion hit 14.2% between July and September before moderating to a commendable growth rate of 7% in the final quarter.
A primary factor attributed for the deceleration in the GDP growth, which started in 4Q22, was the tapering off of domestic consumption.
According to some economists, it is not realistic, moving forward, to expect domestic consumption to keep propping up the economy at the 7% level.
A poll of economists by Reuters from May 2 to May 9 estimated that the country’s economic growth to be just under 5% for 1Q23, dragged down by tepid consumption and declining exports.
The survey considered the view of 21 economic analysts and carried annual GDP forecasts ranging from 3.7% to 6.2%, which the news agency described as underscoring the doubtful outlook for the trade-reliant economy.
It quoted DBS economist Chua Han Teng as saying: “Slowing export-oriented manufacturing activity amid an uncertain global economic environment was the key factor behind the expected deceleration of GDP growth, similar to trends in other external-oriented economies in the region.”
Domestic demand momentum had also likely eased but should had outperformed compared with the external sector, supported by household spending, tourism recovery and infrastructure investment, according to the report.Economist of Singapore-based Coface Services South Asia-Pacific Pte Ltd Eve Barre said the publishing of the March and 1Q23 industrial production index on Tuesday confirmed the economic slowdown that the country has faced since the last quarter of 2022.
“The index grew by 3.1% year-on-year (y-o-y), slower than the 3.5% posted in February and making the industrial production grow by 2.8% over the first quarter of this year.
“This is the slowest industrial growth recorded since the third quarter of 2021, when the country was dealing with lockdown measures,” she observed.
Concurring with DBS’ Chua, she told StarBiz that one benefit of China’s reopening to Malaysia was the tourism industry.
On the other hand, Barre pointed out that with exports to China continuing to decline – by 6.2% y-o-y in March – the potential external gains for Malaysia’s industrial sector remains uncertain.
She forecast 1Q23 GDP growth at 4.7%, similar to the consensus estimate from the Reuters poll, while also anticipating 2023 GDP for the country to be at 4.3%.
Barre said if Malaysia could achieve a 4.3% GDP growth for 2023, it would be “decent”, especially coming off the high base of 2022.
“While exports will weaken, we expect economic growth to be driven by robust domestic demand, supporting private consumption and investment.
“What would be worrisome for Malaysia is if domestic demand slows down more than expected, which is a significant risk in the context of monetary policy.”
Bank Negara has raised the overnight policy rate by 25 basis points to 3% last week.
With Malaysia achieving a record high trade excess of RM255.1bil last year, Barre said the country should maintain a healthy trade surplus for 2023, despite the forecasts of decelerating exports and slowing demand from China.
Professor of economics at Sunway University Dr Yeah Kim Leng said based on the better-than-expected March industrial output performance, the GDP growth for the first quarter would likely be above 5%.
“This would signal a more gradual moderation of the country’s economic growth as well as increased confidence of the 4% to 5% GDP expansion expected for the full year,” he said.
According to Yeah, should China’s import demand falls below expectations, Malaysia’s external performance would likely be more subdued, thereby easing GDP growth towards the lower end of the expected range.
Yeah said although the burden of growth for the subsequent quarters would fall on domestic demand, foreign inflow of funds appeared to be leading domestic investments which are on an uptrend.
Meanwhile, another economist from a local bank concurred with Barre’s approach of taking the longer-term view in terms of GDP expansion and managing expectations.He said it would not be “too reasonable” to project another “double-digit GDP growth quarter” or a 7% quarter as 2022 while agreeing that any GDP expansion rate of above 4% this year would be fair.
“With the US Federal Reserve still on a rate hike trail albeit a more subdued one, this means it still see an inflation problem. With economic growth slowdown projected in many parts of the world, logically, demand would not be as strong as last year resulting in slower growth,” the economist said.
