KUALA LUMPUR (Aug 18): Economists have revised downwards Malaysia's growth forecast for this year after gross domestic product (GDP) in the second quarter of 2023 came in lower than consensus expectations for 3.3% growth.
GDP growth eased further to 2.9% year-on-year (y-o-y) in 2Q2023 from 5.6% y-o-y in 1Q2023. The pace of growth was the slowest since 3Q2021, weighed down by slower external demand.
Bank Negara Malaysia (BNM) said growth for 2Q2023 was also affected by the high base effect in 2Q2022 when the economy experienced strong growth from reopening effects and policy measures.
It added that domestic demand remained the key driver of growth for 2Q2023, supported by private consumption and investment.
In a report on Friday (Aug 18), UOB Global Economics and Market Research has tweaked its 2023 full-year GDP forecast lower to 4% from 4.4% previously, recognising a more challenging external environment and reflecting the weaker 2Q2023 GDP growth number.
"This downward revision further supports our call for the overnight policy rate (OPR) to stay unchanged at 3% for the rest of the year," it added.
UOB also said despite a sustained easing trend from its peak in 3Q2022, Malaysia's growth performance was not bad considering the negative external outlook and normalisation of domestic demand as Covid-19 pandemic measures are rolled back.
"Malaysia’s domestic demand has fared well given the negative external outlook, while foreign inflows, such as foreign direct investments and portfolio, persisted and the labour market improved.
"We anticipate more clarity on domestic economic policies and plans in the coming months that would help to catalyse higher investments and Malaysia’s growth momentum,” it added.
OCBC Treasury Research has also lowered its 2023 GDP growth forecast to 4% from 4.4% previously, to reflect the weaker-than-expected 1H2023 outturn of 4.2%.
"Our 2H2023 growth forecast remains unchanged at 3.7%, reflecting a bigger drag from anaemic external demand conditions. Our full-year 2023 forecast is now at the low end of BNM’s 4% to 5% forecast range for the year,” it said in its report.
OCBC has also lowered its GDP growth forecast for 2024 to 4.2% from 4.5%, adding that it expects BNM to hold its OPR for the rest of 2023 and into 2024.
HSBC Global Research is now expecting Malaysia's GDP growth to decelerate to 4.3% in 2023, in part due to base effects.
"Today's 2Q2023 GDP print highlights the intensifying external woes Malaysia's economy is facing. GDP growth decelerated to 2.9% y-o-y, though in part due to high base in 2Q22, delivering a downside surprise to the market," it said.
"Indeed, even as a resilient exporter, Malaysia is not immune to a severe global downturn in the trade cycle. While the hit to Malaysia's manufacturing sector has been delayed compared to peers, today's print shows that the time has come. Its manufacturing sector barely grew in 2Q, and net exports turned out to be a drag," HSBC said in a report.
HSBC also pointed out that while Chinese visitors' return to Asean remains gradual, Malaysia is among the frontrunners in the region to attract Chinese visitors, almost approaching 50% of 2019's level, just after Singapore's 60%.
"This is likely because Chinese business travellers are more concentrated in these two markets, along with Vietnam, and there is more interest in travelling for business purposes than pure tourism.
"All in all, it is time to buckle up, as downside risks have materialised fast and adverse base effects will be intensifying in 3Q2023," it said.
That said, HSBC said there are still pockets of resilience, including an expected trade stabilisation towards the end of the year and tourism momentum, to help Malaysia weather through economic headwinds.
"The soft GDP prospects reinforce our expectation that BNM will likely stay on hold at 3% in the near term," it added.
Meanwhile, MIDF Research is keeping its 4.2% growth forecast for 2023.
"We are not making any changes for Malaysia’s GDP growth forecast for this year as we expect the strength in domestic demand to be the main driver to support the economy to grow at 4.2%," it said.