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Malaysia’s economy to ease in Q2, continue moderating rest of 2023

By August 11, 2023November 1st, 2023No Comments

Malaysia’s economy may grow slower in the second quarter (Q2) of the year, weighed down by moderation and contraction across all sectors, according to economists. NSTP/OSMAN ADNAN

KUALA LUMPUR: Malaysia’s economy may grow slower in the second quarter (Q2) of the year, weighed down by moderation and contraction across all sectors, according to economists.

They expect this to persist throughout the remainder of 2023 but there should be a silver lining from the pick-up in tourism activities and good vibes from the Madani Economy.

Tradeview Capital Ng Zhu Hann projects a more gradual growth rate of three per cent for Q2, attributing it to moderation across sectors.

“The manufacturing sector’s contraction is evident in the 2Q23 slowdown of manufacturing IPI. Export-oriented manufacturing activities have been impacted by sluggish trade flows and global growth,” Ng observed.

He added that the deceleration is influenced by China’s economic slowdown and reduced demand from major trading partners in Europe and the US.

While domestic-oriented production is likely to expand, it will be at a more subdued pace.

“The path to recovery hinges on bolstering demand, primarily driven by private consumption. Although currently robust, the pace of recovery relies on wage increases and the easing of inflationary pressures on disposable income,” Ng explained to the New Straits Times.

Despite this, Ng remains cautiously optimistic about the second half of 2023, due to the delayed recovery of the global economy, particularly in China.

He also highlighted ongoing recessionary trends in Europe, even though the risk of a recession in the US has considerably receded.

“I believe the GDP growth for the full year will likely be around 4.8 per cent if the Q3 overall performance rebounds.

“With the ringgit strengthening and foreign fund flows returning to Malaysia, more likely if the state election uncertainty is over by next week (provided incumbent state govt remains in charge of each state), then we may see a strong rebound in all economy performance indicators in Q3,” he said.

Hong Leong Investment Bank Bhd (HLIB) expects a slower growth rate of 2.9 per cent year-over-year, down from the 5.6 per cent growth in Q1 2023.

While private consumption may soften, it is still poised to be the primary driver of growth, according to HLIB.

UOB economist Loke Siew Ting expects a potential further slowdown in Malaysia’s economic growth in Q2, projecting it to settle at 3.2 per cent which is lower than the initial estimate of 4.1 per cent.

This will be the weakest growth since Q3 2021 and below the pre-pandemic growth range of 3.6 per cent-5.3 per cent in 2018-19.

He highlighted the positive impact of the Madani Economy measures in the second half of 2023, aiming to alleviate living costs and bolster businesses.

While year-ago high base effects could constrain growth momentum, Loke pointed to promising factors, such as an expected increase in tourist arrivals from China, inventory corrections, an upswing in the tech cycle, and the realisation of approved investment projects.

“As such, the full-year GDP growth projection remains at 4.4 per cent for the time being. The Malaysian economy’s growth trajectory is expected to remain anchored by robust domestic demand, despite a more sluggish external sector.

“Stable labour market conditions, favourable domestic financial environments and sustained credit growth are anticipated to sustain this growth trajectory,” he added.

The Malaysian Institute of Economic Research (MIER) said given the cost of living crisis facing many countries, one could look at these figures from Malaysia with a great sense of relief.

While growth has decreased compared to 2022 – an unsurprising result – it still remains well ahead of the world’s developed economies and even ahead of other Asean countries, it said.

Inflation, while still higher than ideal, is clearly reducing, while unemployment remains low and stable.

MIER while exports are dropping due to reduced spending in other countries, stable depreciation of the ringgit is preventing them from falling as dramatically as they might otherwise.

The most concerning results, it added, should not be those at the current time, but those predicting what is to come in the following months: in particular, concerns from consumers and businesses about reducing income and consequent changes in spending plans.

“The government must work to increase consumer and business confidence to maintain some happy economic growth, albeit not at quite the same levels that were seen in 2022,” it added.