This downward revision comes as a disappointment within the face of earlier optimism, because the 2Q GDP outcomes had been beneath consensus expectations
by RUPINDER SINGH / pic MUHD AMIN NAHARUL
ECONOMISTS are decreasing their progress projections for Malaysia’s GDP for the yr 2023, citing a mix of home and exterior elements which have collectively contributed to the nation’s financial headwinds.
This downward revision comes as a disappointment within the face of earlier optimism, because the second quarter (2Q) GDP outcomes had been beneath consensus expectations.
Newest 2Q GDP Information: A Actuality Examine
The newest information unveiled by UOB World Economics & Markets Analysis, Bloomberg and OCBC Treasury Analysis paint a collective image of a Malaysian financial system that’s slowing down.
The second quarter of 2023 (2Q23) noticed Malaysia’s GDP progress fee drop to a mere 2.9% year-on-year, marking a major decline from the sturdy 5.6% progress registered in 1Q.
UOB Analysis factors to the opposed base impact from the earlier yr as a major contributor to this slowdown.
Its report underscores that this issue has exerted a considerable downward strain on progress charges, regardless of optimistic indicators resembling labour market enhancements and sustained home demand.
“Its 2Q23’s GDP progress remained supported by labour market enhancements, sustained improve in home demand, and better tourism actions,” UOB Analysis stated.
Nonetheless, it famous that this momentum has been tempered by the worldwide tech down cycle and weaker exterior demand.
Bloomberg’s Asean economist, Tamara Mast Henderson, echoes this sentiment by stating that the Malaysian financial system’s progress trajectory within the first half of the yr has been marked by a broader deceleration.
“The tempo of progress is the slowest since 3Q21 albeit largely weighed down by a excessive base impact from final yr” she states.
This deceleration, she famous, is attributed partly to the normalisation of financial circumstances following the preliminary post-pandemic growth.
Because the preliminary reopening impact subsides and exterior demand weakens, she stated it’s anticipated that additional financial slowing might ensue.
Forecasts Underneath Scrutiny: A Nearer Examination
In response to the current information, analysts have begun revising their GDP progress forecasts for Malaysia.
UOB Analysis has adjusted its 2023 full-year GDP forecast from 4.4% to 4%, aligning it with the rising development of decrease progress charges.
Equally, OCBC Treasury Analysis has downwardly revised its projections, estimating a progress fee of 4.2% for 2023, down from its earlier forecast of 4.5%.
“We scale back our 2023 GDP progress forecast to 4% YoY from 4.4% beforehand. This displays the weaker-than-expected 1H23 outturn of 4.2%.
“Our 2H23 progress forecast stays unchanged at 3.7% reflecting an even bigger drag from anaemic exterior demand circumstances.
“Our full yr 2023 forecast is now on the low finish of BNM’s 4%-5% forecast vary for the yr. “For 2024, we decrease our GDP progress forecast to 4.2% from 4.5%, beforehand, because the drag from international progress is predicted to persist. This nonetheless underscores an enchancment in progress momentum relative to 2023,” it stated.
The importance of those downward revisions underscores the multifaceted challenges that the Malaysian financial system is grappling with.
OCBC Treasury Analysis report highlights the weaker-than-expected progress within the first half of 2023 as a key driver for the adjusted progress forecasts.
“We scale back our 2023 GDP progress forecast to 4% from our earlier forecast of 4.4%,” it stated.
Furthermore, it famous that the anticipation of a drag stemming from international progress headwinds and anaemic exterior demand provides to the cautious outlook.
Bloomberg’s expectation of a 3.7% GDP progress fee in 2023, in addition to an extra dip to three% in 2024, introduces an extra dimension to the evolving narrative.
This projection displays the advanced interaction between inner and exterior elements shaping Malaysia’s financial panorama.
Sectoral Efficiency: A Complicated Tapestry
A granular evaluation of sectoral efficiency reveals the nuanced forces shaping Malaysia’s financial panorama.
UOB Analysis delves into sectors together with providers, manufacturing, building and agriculture.
Whereas the providers and building sectors have exhibited progress, manufacturing and agriculture have confronted headwinds.
The contraction in exports, notably evident within the manufacturing sector, has dampened progress prospects.
Bloomberg report accentuates the numerous drivers of GDP progress, highlighting the growing function of the general public sector in bolstering progress by enhanced consumption and funding spending.
It factors out, “Constructive positive factors had been recorded for personal consumption (+4.3%), non-public funding (+5.1%), public funding (+7.9%), and public consumption (+3.8%) whereas web exports contracted 3.7%.”
However, it famous that personal consumption has slowed down, contributing to a narrower function for the non-public sector in financial enlargement.
Exterior Dynamics and Coverage Implications
The economists from their respective stories collectively underscore the exterior pressures which can be exerting affect on Malaysia’s financial system.
The challenges posed by China’s financial strains are anticipated to reverberate by a number of channels, together with decrease commodity costs, decreased export volumes, and subdued shopper sentiment.
The extent of those impacts hinges on the effectiveness of China’s measures to handle its financial challenges.
World rate of interest hikes, primarily in the USA and Europe, are an extra variable contributing to financial uncertainty.
Whereas these fee hikes are poised to impression economies globally, Malaysia’s state of affairs carries its personal distinct intricacies.
Each OCBC Treasury Analysis and Bloomberg recommend that Financial institution Negara Malaysia is prone to keep its present rates of interest by 2023 and into 2024, in an effort to help financial progress in opposition to the backdrop of those challenges.
GDP Information and Present Account Surplus
Along with the GDP information outcomes, the present account surplus has widened within the second quarter of 2023, offering a glimmer of optimistic information amidst the difficult financial panorama.
OCBC Treasury Analysis notes that the present account surplus expanded to RM9.1 billion or 1.9% of GDP in 2Q23, up from RM4.3 billion or 1% within the earlier quarter.
This progress was primarily pushed by narrower deficits within the providers and first revenue stability.
It attributes the narrower providers deficit to larger inbound vacationer arrivals, suggesting a optimistic contribution from the tourism sector regardless of the general financial headwinds. Moreover, the rise in funding revenue from overseas performed a job in offsetting the narrowed items commerce stability, demonstrating the interconnectedness of worldwide financial flows.
Governor Datuk Abdul Rasheed Ghaffour’s perspective is essential on this context.
For the rest of 2023, he expects progress to stay reasonable amidst exterior headwinds.
Nonetheless, resilient home demand, employment enhancements, revenue progress, and the implementation of multi-year tasks are anticipated to help progress. Vacationer arrivals are additionally anticipated to rise, lending help to tourism-related actions.
He highlights that “dangers to Malaysia’s progress outlook are topic to draw back danger stemming primarily from weaker than anticipated international progress. There are, nevertheless, upside danger elements resembling stronger than anticipated tourism exercise and quicker implementation of tasks.”
In the meantime, the central financial institution’s In a single day Coverage Charge (OPR) additionally warrants consideration on this dynamic financial setting.
OCBC Treasury Analysis anticipates that, regardless of the downward revisions in GDP progress forecasts, the central financial institution will keep its present financial coverage stance all through 2023 and into 2024.
It factors out that the central financial institution views the present coverage fee degree as barely accommodative and supportive of progress.
In the meantime, UOB Analysis stated, “The downward revision in our 2023 GDP progress forecast additional helps our name for the in a single day coverage fee (OPR) to remain unchanged at 3% for the remainder of the yr.
“An anticipated pause within the OPR would additionally assist rate-sensitive sectors resembling sturdy items gross sales, together with auto and actual property within the close to time period,” it stated.
- This text first appeared in The Malaysian Reserve weekly print version