KUALA LUMPUR (Aug 10): Economists forecast that Malaysia’s gross domestic product (GDP) growth for the second quarter of the year (2Q2023) will be softer owing to weakening external demand, ahead of the release of the actual GDP numbers on Aug 18.

In a macro note on Thursday (Aug 10), UOB Global Economics & Markets Research projected 2Q2023 GDP growth to settle at 3.2% year-on-year (y-o-y) from 5.6% in the first quarter of 2023, given that April to June economic indicators point to a further slowdown in the country’s real GDP growth.

The latest GDP growth projection is lower than its initial estimate of 4.1% and Bloomberg’s median estimate of 3.6%. It is probably the weakest since 3Q2021 and below the pre-pandemic quarterly growth range of 3.6% to 5.3% in 2018 to 2019, said UOB.

It added that the smaller GDP growth projection mainly reflected the negative effects brought about by manufacturing, mining and quarrying, several services sub-sectors like finance and insurance, food and beverages, and wholesale and retail trade.

“This comes on the back of subdued global demand, tighter global financial and monetary conditions, plants shutdown and elevated costs of living amid higher base effects,” it added.

UOB added that domestic demand will still be the main component supporting the overall economy in 2Q2023, noting that an expected increase in tourist arrivals, especially from China, easing inventory correction, an expected upturn in the tech cycle, and further realisation of approved investment projects could be the silver linings this second quarter.

Hence, UOB chose to maintain its full-year GDP growth projection at 4.4% with Bank Negara Malaysia’s estimate ranging from 4% to 5%, compared to 2022’s 8.7%, though the seasonally adjusted GDP growth is expected to edge higher to 1.5% quarter-on-quarter (q-o-q) in 2Q2023.

The investment unit added that Malaysia is seen as “underperforming some of its regional peers” such as Indonesia (+5.2%) and Vietnam (+4.1%).

In a similar vein, CGS-CIMB in its note on Wednesday also estimated 2Q2023 GDP growth to expand by 3.3% y-o-y, predominantly led by the services and construction sectors, while manufacturing and agriculture decelerated.

“In our view, despite the reduction in disposable income owing to the central bank’s tighter policy rate, the government’s ongoing efforts in price intervention and maintaining subsidies for key items have helped to cushion the cost burdens faced by the average Malaysian consumer,” the research house extended, adding that the risk of price pressures is somewhat cushioned by a healthy employment rate and further government hand-outs.

Additionally, the research unit expects the likely softer GDP performance in 2Q2023 to wane further into 3Q2023 due to high base effects. However, even after excluding the base effects, the underlying economic momentum will likely be much weaker in 3Q2023 as demand, both externally and domestically, dissipates.

CGS-CIMB also said that it predicates the overnight policy rate (OPR) to be maintained at 3% by the end of 2023 and attributed this to easing inflationary pressures and the likelihood of a global economic slowdown becoming more pronounced, trickling into export numbers.

Meanwhile, Maybank Investment Bank Bhd said that it estimates a 2Q2023 GDP growth of 3%, alongside a current full-year real GDP growth forecast remaining at 4.5% in its research note on Wednesday. It did not provide comments on the months moving forward.

Hong Leong Investment Bank (HLIB) Research also expects Malaysia’s 2Q2023 GDP to record a slower growth of 2.9% y-o-y.

In its Thursday note, the research house said growth is expected to be weighed down by moderation and contraction across all sectors.

It said that while private consumption is expected to moderate, it is anticipated to remain the key driver of demand growth.

“We see downside risk to our 2023 GDP forecast, pending the release of actual 2Q2023 GDP print on Aug 18, 2023,” it said.

HLIB said Malaysia’s pace of economic expansion is expected to continue moderating for the rest of the year, taking into account the absence of base effect and pent-up demand.

“The outlook for the global economy has also remained bleak, dampened by tighter credit conditions and sluggish economic data from China,” it said.

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