KUALA LUMPUR (Nov 17): Bank Negara Malaysia governor Datuk Shaik Abdul Rasheed Ghaffour said Malaysia remains on track to achieve its gross domestic product (GDP) growth target this year, albeit at the lower end of its forecast range of 4% and 5% for this year.
He said this after announcing that GDP growth for the third quarter of 2023 (3Q2023) came in at 3.3%, slightly better than the 2.9% y-o-y growth recorded in 2Q2023, but lower than the 5.6% y-o-y growth in 1Q2023.
“By now, there are many indicators showing how resilient our economy is. Despite all the external shocks, growth in the first three quarters of this year was 3.9%. Based on the latest indicators, growth for 2023 is expected to be around 4%,” Abdul Rasheed told reporters at a briefing on Malaysia's 3Q2023 GDP on Friday.
“Malaysia, as a well-diversified economy, has the resiliency to adapt to the changing environment and demand from the external sector. Looking at indicators in terms of GDP growth for this year, we see positive growth in terms of demand for passenger cars and private consumption. This is where we feel that the growth target of 4% is achievable this year," he said.
Last month, the World Bank cut its target for Malaysia’s GDP to 3.9% from 4.3% for 2023, amid a substantial deceleration in external demand. Its lead economist for Malaysia Dr Apurva Sanghithe said the high base effect also played a role in the World Bank’s GDP growth forecasts, given that the country’s economy rebounded 8.7% last year, so expansion is projected to moderate in 2023 before accelerating in 2024.
For 2024, the World Bank raised its projection for Malaysia's GDP to grow 4.3%, up from 4.2% previously, on the back of the country's economy is expected to be driven by recovery in global growth, the tourism sector and anticipated higher oil prices.
BNM keeps 2024 GDP growth target at 4%-5%, inflation target at 2.1%-3.6%
Meanwhile, the central bank kept to the Malaysian government's projection that the country’s economy would grow between 4% and 5% in 2024.
“On the global front, slower-than-expected recovery in external demand is the key downside risk factor. On the domestic front, weaker labour market conditions, more severe shocks on commodity production due to stronger impact from El Nino, and prolonged plant maintenance could also potentially weigh on the growth outlook.
On the upside risk for the GDP growth in 2024, Abdul Rasheed said mainly stems from stronger-than-expected tourism activity, faster recovery from tech cycle downturn as well as a larger impact from the progress of multi-year investment projects and policy measures under national master plans and blueprints that were announced recently by the government.
He also added that BNM’s GDP projection for 2024 has also taken into consideration the increase in the sales and services tax (SST).
To recap, Prime Minister Datuk Seri Anwar Ibrahim announced the increase of SST to 8%, from 6% at present, as part of efforts to increase revenue when he tabled the Budget 2024 in Parliament last month.
Aside from the higher rate, the scope of the SST will also be widened to include logistics services, brokerage and underwriting as well as karaoke.
On the impact of subsidy rationalisation on inflation in 2024, he said this is pending the implementation of subsidy rationalisation by the government.
“It depends on the finalised details. As I said, all would have some impact in terms of inflation, but this will come with target assistance to the targeted segments of the economy. This would also support consumption. That is why we look at the inflation forecast, it is quite a big range, between 2.1% to 3.6%, as we take into consideration the pending subsidy rationalisation implementation,” he noted.
For the first nine months, headline inflation averaged 2.8%, followed by core inflation at 3.3%. The government has estimated the full-year headline inflation for 2023 to average between 2.5% and 3%, compared with 3.3% in 2022.
On the impact of the US monetary tightening policy on ringgit movement, Abdul Rasheed expects that the US monetary policy is “maybe at the end of the tail end of the tightening cycle”, and that once this happens, the ringgit could strengthen.
“[Still] the movement of the ringgit exchange rate is heavily influenced by external development, not just in terms of the strong US dollar, but also China's weaker than expected economic performance and geopolitical tensions we have seen in the Middle East,” he explained.
At the time of writing, the ringgit was trading at 4.684 against the US dollar. The local currency has depreciated 6% year to date.
When asked how the central bank would react in terms of monetary policy against such a volatile backdrop, Abdul Rasheed only said that the focus remains on the country's inflation and growth outlook.
The overnight policy rate (OPR) is currently at 3% after BNM concluded its Monetary Policy Committee (MPC) meeting on Nov 2. The last rate hike was in May, when BNM increased the OPR by 25 basis points to 3%.