AmBank Economic Research expects the quarterly GDP figures to be in the range of 3.9% to 4.4%. — Bloomberg
KUALA LUMPUR: Signs are pointing to a lower gross domestic product (GDP) number for the second quarter of this year (2Q23) but the economy is expected to be supported by domestic consumption, according to economists.
The improvement in the labour market, as reflected by the decline in the unemployment rate to 3.4% in June from 3.6% in January, would also offer a substantial buffer to offset the cyclical weakness in external demand, they said.
“We estimate economic growth to slow to 3% year-on-year (y-o-y) in 2Q23 from 5.6% in 1Q23 and 7.1% in 4Q22.
“If so, it will be the third consecutive quarter of moderation and the slowest growth since 4Q21,” said Lee Heng Guie, an economist and executive director at the Socio-Economic Research Centre.“On the domestic front, we have to brace for an economic slowdown.
“Economic data has been sending mixed signals throughout 2Q23, suggesting that the economy is on a slowing mode from the previous year which was buoyed by cash stimulus and the Covid-19 pandemic economic reopening effects,” he added.
A Bloomberg poll of economists showed a median 2Q23 GDP growth forecast of 3.6%.
AmBank Economic Research expects the quarterly GDP figures to be in the range of 3.9% to 4.4%. The country’s 2Q23 GDP is slated to be announced tomorrow.
“Overall, we expect a slowdown in production activity for the remainder of the year.
“Manufacturing activities among most developed and neighbouring countries have continued to decline as indicated by the latest manufacturing Purchasing Managers’ Index numbers, which remained below the contractionary yardstick,” said AmBank Economic Research.
Moody’s Analytics said in a report earlier this week that the July economic activity data for China, which is Malaysia’s biggest export market, would show softness across industrial production, retail sales and fixed-asset investment.
“From falling prices to deteriorating trade, July indicators out of China confirmed the poor state of its economic recovery.
“With shoppers and businesses hesitant to spend and invest, the pressure is on the government and the central bank to give an adrenaline shot in the form of stimulus,” Moody’s Analytics stated.
“Without it, China could struggle to achieve its 5% growth target. With the fortunes of so many economies in the region tied to the country, the flow-on benefits from extra stimulus could be wide-ranging,” it added.
According to Nomura, the move by the People’s Bank of China on Tuesday to cut the one-year medium-term lending facility rate to 2.5% from 2.65%, and slashed the seven-day reverse repo rate to 1.80% from 1.9%, might not be of much help.
“In our view, Beijing should play the role of lender of last resort to support some major developers and financial institutions in trouble, and should play the role of spender of last resort to boost aggregate demand,” Nomura stated in a recent report.
Lee said Malaysia’s exports have contracted for months due to the weak global demand and which was reflected in the manufacturing sector having contracted in June while manufacturing sales had also slowed.
He pointed out that consumer spending indicators are starting to weaken with retail trade rising 4.9% y-o-y in 2Q23 compared with 14.7% in 1Q23.
“While we reckon that downside risks to the global economy and domestic economic conditions will persist, the current domestic economic slowdown feels more like a business-cycle slowdown,” Lee said.
Economist Anthony Dass said the country would need to depend on domestic demand and other external markets to counter the slowdown in China.
He said the knock-on effect from the republic’s slowdown would be felt by certain sectors namely electronics and electrical, oil and gas, metal products, palm oil and tourism.
Dass said the country’s GDP growth for 2023 would be within the forecast range of 4% to 5%.
He noted the domestic economy should be able to navigate its way out from the hiccups brought about by the volatile global environment in the first half of this year(1H23).
“It is expected to be supported by favourable household spending, healthy labour market, foreign direct investment (FDI), and economic fundamentals,” he pointed out.
Dass added the country’s progress in diversifying the structure of the economy to be less dependent on commodities as well as the expansion of trading partners through the regional comprehensive economic partnership had strengthened its economic resilience.
Bank Muamalat Malaysia Bhd chief economist, market analysis and social finance head Dr Mohd Afzanizam Abdul Rashid expects domestic demand to be the key driver for the country’s 2Q23 economic growth is likely to hit 4.2%.
“The improvement in the labour market is reflected by the decline in the unemployment rate to 3.4% in June from 3.6% in January.
“Apart from this, the number of active Employees Provident Fund members had reached 8.47 million in 1H23 compared with eight million in 1H22. This indicates that more Malaysians are getting employed and would have the means to spend,” he said.
Prof Yeah Kim Leng, who is one of the finance advisers to Prime Minister and Finance Minister Datuk Seri Anwar Ibrahim, said private investment and consumer spending, which constitutes 60% of GDP, are expected to provide a substantial buffer to offset the cyclical weakness in external demand.
“The steady rise in FDI and investment commitments coupled with reduced political risk and enhanced stability of the unity government following the outcome of the state elections are expected to further strengthen investor confidence.
“Given the implementation of economic plans and reforms, the country’s dynamism is expected to elevate private investment as one of the twin engines of growth. The other engine, consumer spending or private consumption, is expected to moderate to post-pandemic trend increase of 6% annually,” he said.
Meanwhile, Hong Leong Investment Bank Research said Malaysia’s manufacturing activity is expected to remain weak in the near term due to the subdued external condition and high base effect. The research firm maintained its GDP growth forecast for 2023 at 4.5%.
