KUALA LUMPUR (Feb 24): The Malaysian economy is expected to grow by 4.5% to RM1.57 trillion this year, supported by stable domestic demand, mainly from household spending, in line with the recovery in the labour market, according to the government’s revised 2023 Economic and Fiscal Outlook report.
The latest forecast falls within the range of the previous government’s projection of 4%-5% gross domestic product (GDP) growth this year.
Contribution from tourism-related sectors is also expected to improve following an increase in tourist arrivals. “The acceleration of infrastructure projects with high multiplier effects, robust growth in private investment and continuous external demand particularly among major trading partners will further support the economy,” the report noted.
The country reported an 8.7% GDP growth for 2022, topping 8% for the first time in 22 years, which placed its growth rate among the highest in the world.
In the revised Economic and Fiscal Outlook report, the government forecast that domestic demand — projected to expand 5.4% in 2023 versus 9.2% in 2022 — will continue to anchor growth despite the anticipated challenging global environment.
The expansion will be mainly driven by private sector expenditure, which is forecast to grow by 6.1%; while public sector expenditure is anticipated to increase by 2.5%.
“Continuous labour market improvement as well as sustained economic and social activities, particularly tourism-related activities following reopening of China's border, are expected to support private consumption growth, albeit at a moderate pace of 6.1% [from 10.4% in 2022].
“The expected moderation in consumer spending is attributed to diminishing pent-up demand given the dissipating effect from the special EPF (Employees Provident Fund) withdrawal as well as lag effect from the increase in the overnight policy rate (OPR),” the report stated.
The external sector, meanwhile, is projected to post “modest” growth this year as global uncertainties persist, with growth in gross exports forecast to moderate to 1.6% in 2023, from 25% last year.
“The anticipated slowdown of external demand is due to the lacklustre growth in the wake of ongoing geopolitical instability as well as projected ease in global commodity prices,” the report noted.
In terms of sectoral breakdowns, the services sector — which is expected to expand 5.3% this year after growing 10.9% in 2022 — will likely continue to steer growth amid moderating global economic activities.
Wholesale and retail trade will remain a key services subsector, following greater usage of e-commerce and rapid transition to digitalisation.
“The expansion of online transactions is in line with the aim of creating a cashless society ecosystem. The motor vehicles segment is also projected to support the subsector's growth with the introduction of new electric vehicle (EV) models,” the report stated.
Growth in the manufacturing sector is also expected to moderate this year to 3.9%, down from 8.1% in 2022 and 9.5% in 2021, amid moderating economic activities.
The mining sector is likewise projected to expand at a slower pace of 1.2% this year compared to 3.4% in 2022, as output of crude oil and condensate is expected to moderate due to lower production rates from existing fields in Peninsular Malaysia.
The government is forecasting an average Brent crude oil price of US$80 per barrel, “due to anticipation of lower demand following a moderation in global economy”.
Crude palm oil prices are forecast to average around RM4,000 per tonne this year, after taking into consideration increased production in Malaysia, thanks to improved labour supply, which will be weighed by availability of other edible oils.
The strengthening labour market is likely to help the agriculture sector expand growth by 1.1% in 2023, from 0.1% last year.
Apart from agriculture, construction is another sector that is projected to post higher growth this year, at 6.1% compared to 5.0% in 2022, spearheaded by civil engineering activities with the implementation of new projects such as the upgrading of the Klang Valley Double Track (KVDT) Phase 2, and acceleration of ongoing infrastructure projects, which include the East Coast Rail Link, the Light Rail Transit Line 3 (LRT3) and the fifth-generation cellular network (5G) rollout.