PETALING JAYA: At least six bank-backed research firms have lowered their economic growth forecasts for Malaysia this year.
The string of downward revisions was not surprising, especially after Malaysia posted a disappointing gross domestic product (GDP) growth of 2.9% year-on-year (y-o-y) in the second quarter of 2023 (2Q23).
With external demand turning sour, analysts predicted the economy to grow closer to the lower-end of Bank Negara’s official guidance of 4% to 5% in 2023.
Kenanga Research, whose forecast cut was one of the biggest, cautioned that 2023 GDP growth could even slip to below 4%.
In its latest note, the research house projected the 2023 GDP growth to be within 3.5% to 4% y-o-y, as compared to its earlier forecast of 4.7%.
The reduced forecast is to account for sustained weakness in external demand as the global economy continues to decelerate owing to prolonged monetary tightening and China’s fragile recovery.
However, Kenanga Research believes the economy would return to a moderate expansion in the second half of 2023 (2H23), buoyed by the resilience of domestic demand as the labour market remains robust.
“This will likely be bolstered by a continued recovery in tourist activity and the ongoing implementation of multi-year investment projects,” it said.
CGS-CIMB Research also slashed its forecast to 4% y-o-y as compared to its earlier estimate of 4.6%.
While it thinks that there remains “considerable strength” to the economy in 2H23, thanks to improvements in real wages and investments, it said the key to growth performance is still anchored on the outlook for external demand.
Thus far, the performance of key export markets remain subdued.
“A potential massive stimulus from China and its spillover effects on the rest of the world seem unlikely, while key export products such as electrical and electronics may have yet to see reliable signs of a rebound.
“In fact, the July trade data that was released alongside the 2Q23 GDP provides a glimpse of the potentially weak external environment in 3Q23.
“With the softer GDP performance, we think Bank Negara may remain on pause with the overnight policy rate at 3% for the rest of the year,” according to CGS-CIMB Research.
Meanwhile, Hong Leong Investment Bank (HLIB) Research foresees Malaysia’s pace of economic expansion to remain moderate for the remainder of the year.
It noted that the downside risks for the domestic economy are a weaker-than-expected global growth and a prolonged technology downcycle.
“Nevertheless, growth is expected to be supported by domestic demand, although at a softer pace, underpinned by the healthy labour market and continued recovery in tourism industries.
“Following the weak 2Q23 GDP figure, we lower our 2023 GDP forecast to 3.8% y-o-y from 4.5% y-o-y previously,” stated HLIB Research.
UOB Kay Hian (UOBKH) Research also slashed its 2023 forecast to 4% y-o-y, reflecting a more challenging external environment and a weaker GDP performance in 2Q23.
However, it pointed out that Malaysia’s growth performance is “not bad”, despite experiencing a sustained easing trend from its peak in 3Q22.
This is considering the negative external outlook and normalisation of domestic demand as pandemic measures are rolled back.
“Malaysia’s domestic demand has fared well, given the negative external outlook, while foreign inflows (foreign direct investments and portfolio investments) persisted and the labour market has improved.
“We anticipate more clarity on domestic economic policies and plans in the coming months that would help to catalyse higher investments and Malaysia’s growth momentum,” it said.
The other research houses that revised downward Malaysia’s GDP growth forecast for 2023 were OCBC Bank and Maybank IB Research.
OCBC Bank dropped the forecast to 4%, and warned that the drag from global growth is expected to persist.
As a result, the bank also lowered its GDP growth forecast for 2024 to 4.2% from 4.5%, previously
“This nonetheless underscores an improvement in growth momentum relative to 2023,” it said in a note.
Maybank IB Research also anticipates a GDP expansion of 4% in 2023.
It is noteworthy that the research house had initially projected a 4% growth in 2023, but the forecast was raised to 4.5% in May after the release of 1Q23 GDP figures amid China’s reopening euphoria that has now “soured”.
