Professor Williams says 3Q23 GDP growth rate could fall in the range of between 2.7% and 3.3%.
PETALING JAYA: With Bank Negara set to release the gross domestic product (GDP) growth figures for the third quarter (3Q23) tomorrow, all eyes will understandably be on whether the latest numbers will support the government’s growth projection of 4% to 5% for 2023.
This comes against the now-familiar backdrop of continued reliance on domestic demand, evidenced by a significant year-on-year (y-o-y) drop in the Business Confidence Index to 79.7 in 3Q23 from 99.8 of the corresponding three months a year ago as export orders declined.
The Malaysian Institute of Economic Research (MIER), in an outlook note published yesterday, reported that in terms of international trade, July and August saw an average monthly drop in exports of RM15.8bil and an average monthly drop in imports of RM18.6bil.
“Trade has decreased y-o-y in all major sectors, with the biggest drop in manufacturing – the sector that makes up 87% of total exports – dropping by RM11bil from July 2022 to July 2023.
“In particular, refined petroleum, a significant proportion of Malaysia’s export market, has dropped in value by 48% in one year due to a combination of reduced export volumes and reductions in unit price,” it said.
While the wide and increasing gap between imports and exports has resulted in an encouraging reduction in the balance of payments deficit; MIER said the significant reduction in exports will be of concern to trading Malaysian businesses, as the reduction in imports must be viewed with caution in light of the pessimistic consumer and business sentiments.
At the same time, executive director for the Socio-Economic Research Centre (SERC) and economist Lee Heng Guie said based on the economic releases for 3Q23, SERC is estimating Malaysia’s real GDP to grow moderately by 3%, almost at the same rate as the 2.9% posted for 2Q23.
He told StarBiz: “This is lower than the Statistics Department’s advanced estimate of 3.3% for 3Q23, reflecting a persistently challenging growth in the second half of 2023 as the country comes off a high base effect from last year.”
He believes that the continued drag from falling exports of electronics and electrical (E&E) products has dented the manufacturing sector, while consumers’ cautious discretionary spending continued to dampen the services industries.
Lee pointed out that most sub-services sectors registered growth that are below expectations, and pending the final release of GDP data for 3Q23, he reckoned the country’s full-year GDP growth for 2023 to come in at 3.8%.
With the global economy still subjecting to downside risks in 2024, he suggested that it is crucial for the government to implement the projects and programmes outlined in Budget 2024 in a timely and effective manner to help keep domestic demand robust.
“Nevertheless, the kick-off of targeted subsidy rationalisation and higher service tax rate could temper household spending and also increase business cost. On the other hand, there is a silver lining on exports given that the global semiconductor sector is showing an early sign of bottoming out,” he opined.
Economics professor at Malaysia University of Science and Technology (MUST) Geoffrey Williams said the 3Q23 GDP growth rate could fall in the range of between 2.7% and 3.3%, although he concurred that Lee’s 3% estimate could be the best approximation.
Calling on Malaysians to look forward towards 2024 and focus on key structural reforms, he is expecting 2023 GDP growth to be below the government’s target range of 4% to 5% as has been predicted all year.
Notably, Williams feels there is a strong likelihood of a quarter-on-quarter contraction in the final quarter, before predicting that overall GDP growth for this year would be between 3.5% and 4%.
There is still a strong chance of lower growth below 3.5% for the full year, so the downside risks are still there.
Taking a glance at the numbers, he told StarBiz: “The economy would have to grow by 3.8% in 3Q23 and 4Q23 on average to achieve 4% for the full year and it does not look like it will do that.
“If GDP grows at 3.3% in 3Q23 as the Statistics Department’s advance data suggests, then it would have to grow by 4.4% in 4Q23.”
Concurrently, chief economist at Bank Islam Malaysia Bhd Firdaos Rosli is projecting Malaysia’s 3Q23 GDP to be at 3.2%, slightly outperforming the second quarter, while also forecasting whole-year GDP growth to be at 3.7%.
Meanwhile, commenting on the ringgit, SERC’s Lee thinks that the local currency will likely trade cautiously against the US dollar in the last two months of the year, underpinned by the Federal Reserve’s (Fed) narrative of keeping its interest rate “higher for longer”, since the Fed is not confident that it has done enough to curb inflation.
At the same time, Williams foresees the ringgit to remain in the RM4.60 to RM4.70 range against the greenback in the next few weeks, and that the former would have to strengthen considerably after that to get to the RM4.20 to RM4.30 level that he had earlier predicted.
Bank Islam’s Firdaos also thinks the ringgit should be trading at RM4.60 to the dollar by year-end, although he acknowledged that there is always pressure on the local note as the Federal Open Market Committee (FOMC) meeting beckons.
Notably, however, he told StarBiz: “On the other hand, following the FOMC meeting on Dec 12 and 13, the ringgit should go on a strengthening mode, because the likelihood of the Fed holding its fund rate at the current level of 5.25% to 5.5% is about 94.5%.”
Separately, he also indicated that the government could explain the fruition status of investments that have been approved so far this year, to give the public a clearer understanding of how much of these investments have actually been captured and realised in the country.
