KUALA LUMPUR (Jan 5): Malaysia's economic growth is poised to moderate this year amid the lingering environment of high inflation and interest rates globally, but Maybank Investment Bank (Maybank IB) believes the country is unlikely to fall into a recession as local monetary policy remains non-restrictive, while softening of consumer spending cushioned by excess savings built up over the last two years.
The investment bank is forecasting a 4% gross domestic product (GDP) growth for 2023, versus the estimated 8% growth last year.
Chief economist Suhaimi Ilias said although consumer spending growth is estimated to slow down to around 6% this year versus slightly above 11.5% in 2022, consumers are expected to tap into their excess savings built up during the pandemic years.
“Consumers have built up in excess savings since 2020, amidst lockdowns and economic stimulus measures, such as cash handouts, financial aids and of course the RM145 billion worth of pre-retirement EPF (Employees Provident Fund) withdrawal schemes, that has turned into drawdown of excess savings since May 2022, and this is providing buffer and support for consumer spending growth,” he explained during the Maybank IB 2023 Market Outlook media briefing on Thursday (Jan 5).
Additionally, inbound tourism is expected to sustain a reopening tailwind this year, while robust approved investment growth is likely to continue amid supply chain relocation and rising capital expenditure for data centres, 5G infrastructures as well as automation to address labour shortage issues, said Suhaimi.
“Before Covid-19, in 2019, tourism accounted for almost 12% of GDP, and we saw that as a result of pandemic and lockdown, closure of international borders, how tourism’s contribution to the economy has drastically dropped to less than 4% of GDP on average in 2021 and 2020,” he said.
Nonetheless, Suhaimi said China will be a wildcard as with every one percentage point change in the world's second largest economy’s GDP, Malaysia’s growth will be affected by swinging 0.5 percentage point accordingly.
“We expect China's growth to improve to 4% this year from our estimate of 3.3% last year, on the assumption of unwinding of zero-Covid policy there. This is short of the official figure of 5% growth.
“Reason for this is we remain cautious especially in the real estate sector in China, which makes up 30% in GDP when you include various related activities in the value chain, and also account for a quarter of banking system loans,” he said.
“[On] the slump in property prices or default and trouble in repaying loans or coupon rate, there is a risk of a major ripple and systemic effect on China's economy, banks and markets if there is going to be a major meltdown in real estate, irrespective of the unwinding of zero-Covid policy. That’s why China is a wildcard,” he added.
Expects one more OPR hike amid elevated wage growth
Given that the manufacturing and services sectors’ wages and salaries growth remained elevated in the third quarter last year, Suhaimi is expecting Bank Negara Malaysia (BNM) to raise its overnight policy rate by another 25 basis points to 3% before pausing for the rest of this year.
“[This] basically means BNM's monetary policy is not restrictive as what we are seeing in major advanced economies, specifically the US. So, I guess that means BNM is trying to strike a balance in addressing inflation and supporting growth.
“I also take the view that recent improvements in the ringgit against the US dollar eases the pressure on BNM’s interest rate policy,” he said.
Suhaimi also pointed out that the ongoing high inflation has eroded consumers’ purchasing power despite the high wage growth since the third quarter of 2021.
Therefore, he said it is unlikely for the government to introduce Goods and Services Tax (GST) in the upcoming Budget 2023.
“It is never popular to raise or introduce tax at a time when people are impacted by higher cost of living. In any case, any extra revenue needed for the government, to be honest, can come from non-tax revenue, and that basically boils down to Petronas dividend.
“Since 2019, consistently every year the government has been getting a special dividend from Petronas anyway, above what was originally budgeted,” he noted.
Although crude oil price has come under pressure to US$80 level recently, Suhaimi said currently prices are still positive for Malaysia.
“In times of global downturn, or sharp slowdown or [stagnation], crude oil price typically drop to around US$25-US$45 per barrel range. It is still around US$80 per barrel, so it is not currently behaving in a manner consistent with global downturn in the past,” he said.
Budget 2023’s subsidy measures to be a main focus
Suhaimi said another key focus for him in Budget 2023 would be subsidy measures, as it would affect domestic inflation, which is forecasted to be 3.0% this year, down from 3.3% last year.
“Budget 2023, [which] was tabled in October last year, hinted at subsidy rationalisation via a targeted mechanism against the current blanket system. It is indicated in a way when we look at allocation for subsidies and social assistance for this year, [it] was proposed to be cut by almost 30%.
“The move towards targeted subsidy is perhaps taking shape already, with the revised electricity tariff for the first half of 2023, where there are hikes to MNCs (multinational corporations) and medium-to-high voltage users, but no change to domestic and low voltage users,” he said.