Even as a resilient exporter, Malaysia is not immune to a severe global downturn in the trade cycle, says HSBC Global Research.
PETALING JAYA: The deceleration in the country’s growth as evident in the underwhelming 2.9% gross domestic product (GDP) print for the second quarter (Q2 2023) has prompted economists to temper any optimism the economy will see a rebound in the second half of the year.
Several economists that FMT Business spoke to are in consensus the 2023 GDP figure could settle at the lower end of the official 4% to 5% target, or even go significantly lower.
Malaysia University of Science and Technology (MUST) economics professor Geoffrey Williams said growth in the second half (H2 2023) is likely to be slow. And it would need an extra strong finish to make up for this slowdown.
“The final figure for the year will come at the lower end of the official 4%-5% range, and there is an increased risk it could be below 4%, even as low as 2.5% by year-end,” he told FMT Business.
Williams said the second and third quarter (Q3) growth will both be challenging because of excessive growth spurred by pre-election spending last year.
However, he opined this is part of a normalisation of growth towards more sustainable levels.
“Following the shocks of recent years, and two recessions under the previous governments, we see some volatility now but it will settle towards a more sustainable rate in the next year,” Williams said.
Bank Negara Malaysia (BNM) reported yesterday the economy grew by 2.9% year-on-year (y-o-y) in the second quarter compared with 5.6% in the preceding quarter (Q1 2023), as it was weighed down by slower external demand.
Malaysian Institute of Economic Research (MIER) senior research fellow Shankaran Nambiar said though it was possible to hit the growth target, it’s more likely to be at the lower end of the range.
He cited a number of unfavourable factors contributing to the recent results.
“With the electrical and electronics (E&E) sector not posting good numbers due to the moderate performance in the semiconductor industry, the prices of commodities being uninspiring, and coupled with low exports, it wasn’t surprising that trade numbers were under the bridge,” he said.
He added that anxiety about the US Federal Reserve (Fed) rate hikes didn’t help nor did growth concerns about China.
Global economic factors
Sunway Business School economics professor Yeah Kim Leng concurred, saying there is an increased likelihood that the full-year GDP will be at the lower end of the 4%-5% bridge.
“More importantly, the buffer against a global slowdown – the US economy – is still holding up, and its inflation continues to edge downwards, signaling the Fed hiking cycle has either ended or is very near the end,” he said.
This will provide some breather to the downward pressure on emerging country currencies and that would be positive in the fourth quarter’s global outlook, he said.
However, the Chinese economy is facing challenging headwinds, and that will have ripple-on effects on other economies, including Malaysia.
“If the Chinese economy can recover in Q4 2023, the global slowdown will not be as severe as perceived now given Malaysia’s exports have dipped significantly because of the slowdown in the global economy,” Yeah told FMT Business.
“Domestically, private investment growth at 5.1% suggests it could be a driver for the H2 2023, especially when investor confidence perks up because of the conclusion of state elections resulting in increased political stability,” he added.
In a report yesterday, UOB Global Economics and Market Research tweaked its 2023 GDP forecast lower to 4% from 4.4% previously, recognising a more challenging external environment and reflecting the weaker Q2 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.
Meanwhile, HSBC Global Research is expecting Malaysia’s GDP growth to decelerate to 4.3% in 2023, in part due to base effects.
“The Q2 2023 GDP print highlights the intensifying external woes Malaysia’s economy is facing. GDP growth decelerated to 2.9% y-o-y, in part due to the high base in Q2 2022, delivering a downside surprise to the market,” it said in a note yesterday.
“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, (the Q2 GDP) print shows that the time has come. Its manufacturing sector barely grew in Q2 and net exports turned out to be a drag,” HSBC said.
Center for Market Education CEO Carmelo Ferlito said if actions are taken to find new international partners and to revamp manufacturing, the economic growth projection is still within target.
“The most disappointing performances are coming from the international trade sector,” he said, adding that with the slowdown of some foreign economies, in particular China, there is a negative rebound on Malaysia.
Amid a backdrop of lacklustre global growth, Malaysia’s manufacturing sector faces an equally challenging landscape with growth slowing down as evident in its export-driven segment, which saw a meagre growth of 0.1% for Q2 2023 from 3.2% in the preceding quarter (Q1 2023).
Federation of Malaysian Manufacturers (FMM) president Soh Thian Lai said the outlook for the sector is very much dependent on the global economic performance as the sector is leaning on external demand.
“At the same time, the business sector continues to face high costs of doing business which will also impact their business operations and sustainability,” he said.