KUALA LUMPUR (Oct 7): Malaysia’s economic growth in 2022 could land higher than initial estimates at 6.5%-7%, before slowing to 4%-5% in 2023, said the Ministry of Finance in its 2023 Economic Outlook report.

The slower growth seen for 2023 is against the backdrop of softening world economic growth and trade activities due to inflationary pressure, tightening of financial conditions, supply strains and geopolitical fragmentation, the report said.

That will put Malaysia's growth at pre-Covid-19 pandemic levels, where it recorded 4.7% in 2018 and 4.3% in 2019. 

However, it should be noted that the forecast is on the back of the International Monetary Fund's (IMF) 2023 global growth forecast of 2.9%. The IMF is expected to make a downward revision of that forecast as soon as next week, according to reports.

For 2022, Bank Negara Malaysia has forecast Malaysia’s gross domestic product (GDP) growth to be in the range of 5.3%-6.3%, with Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz saying it may exceed the forecast, following stronger-than-expected growth in the second quarter.

Malaysia’s strong GDP growth performance of 6.9% in the first half of 2022 is expected to be sustained in the second half of the year, backed by an increase in private consumption and business activities coming out of the pandemic.

For 2023, the domestic economy is seen to be driven by “steady domestic demand, a vibrant services sector, implementation of new and ongoing high-multiplier infrastructure projects, and sustained exports”, it said.

That said, gross export growth is seen to slow down sharply to 2.2% in 2023, from 17.4% in 2022, amid modest external demand, coupled with commodity price volatility. Gross exports grew a whopping 26.1% in 2021.

Nevertheless, the pace of economic recovery is also dependent on other factors, including successful containment of the pandemic, support for the cost of living, and efforts in mitigating the downside risks, such as geopolitical uncertainties, global inflation as well as tightening financial conditions, the report noted. 

In 2023, domestic demand growth is expected to slow to 5.1%, from an estimated 6.3% growth in 2022, as private consumption growth moderates to 6.3%, compared with 8.7% during the same period.

The momentum will be partly supported by an improved labour market and tourism-related activities, the report said.

Public consumption is projected to expand by 2% in 2023, up from 1% in 2022, on account of higher spending on emoluments, mainly due to special additional annual salary increments for civil servants.

This will be further supported by the special financial assistance in January 2023 for civil servants and pensioners, it added.  

Meanwhile, private investment is projected to register a higher growth of 3.7% in 2023, from 3% in 2022. The expansion will be attributed to an increase in capital spending in the technology-intensive manufacturing and services sectors, particularly information and communications technology-related machinery and equipment.

Public investment is forecast to expand by 2.1% in 2023, from an estimated 2.2% growth in 2022. Among major projects expected to commence in 2023 are the Mass Rapid Transit Line 3 (MRT 3), Phase 2 of the Sarawak-Sabah Link Road, and the Trans-Borneo Highway. 

Read more stories from the Economic Report 2022/2023 here.