RAM Ratings: Strong growth in 2022 should provide foundation for 2023’s headwinds 

Malaysia’s economy will inevitably face downside risks next year given the looming threat of a global recession


MALAYSIA’S stellar growth in 2022 should provide a strong foundation of growth in a challenging 2023, albeit a slower one, according to a local research outfit.

According to RAM Ratings economic research head Woon Khai Jhek Malaysia’s economy will inevitably face downside risks next year given the looming threat of a global recession.

However, he said Malaysia’s diversified and broad domestic economic portfolio should be able to support and lessen the effects of reduced exports.

“Sector that is more reliance on domestic consumption might be faring better compared to those which primarily rely on external demand such as the electric and electronic, metal sector and chemical production sectors,” Jhek said.

“However, Malaysia cannot escape the ripple effects from slower global growth next year, which will directly soften external demand and dampen Malaysia’s export performance,” he said in a webinar.

Therefore, he opined that domestic demand will remain the key driver for growth next year, supported by the continued recovery in the labour market and existing policy support measures.

To date, Malaysia’s GDP year-to-date third quarter of 2022 expanded by 9.3% year-on-year. RAM Ratings estimates that full-year growth to reach 8.2%, while Malaysia’s GDP growth is projected to come in slower at 4%-5% in 2023.

Headline inflation is anticipated to stay elevated at 2.7% in 2023 against 3.3% this year although this is still subject to policy changes in domestic subsidies and global commodity prices next year.

RAM Ratings is expecting at least another 25 basis point (bps) hike in the Overnight Policy Rate in 2023 to bring the policy rate back to the pre-pandemic level of 3%.

Jhek said a further escalation of geopolitical tensions, supply chain disruptions, labour shortages and political uncertainty on the domestic front could add pressure to 2023’s growth for the country.

Meanwhile, Economist Intelligence Corporate Network’s director for South-East Asia Sumana Rajarethnam said next year’s headwinds are primarily a result of Russia’s invasion of Ukraine, global monetary tightening and China’s economy remaining fragile.

“The war is affecting the global economy via higher commodity prices, supply-chain disruptions and Russia’s weaponisation of energy supplies,” he said.

Despite that, Sumana is optimistic for economic prospects because Malaysia’s economy is diverse, less dependent on a single source, and supported by other industries like banking and Islamic finance that can accelerate growth in the years to come.

Even though economic uncertainties are anticipated to worsen next year, he suggested some bright spots and opportunities for Malaysia to tap into, including the easing of China’s zero-Covid policy, moderation in global food commodity prices and the healthy return of international travel as well Malaysia to consider some tech transfer such as the metaverse.

On the current political stalemate on the appointment of a prime minister following the conclusion of the 15th General Election (GE15), Jhek said it may impact foreign investors’ confidence if it prolongs.

Meanwhile, Sumana believes regardless of the party or candidates, many analysts have considered the political risk.

“Nonetheless, we expect that the government will continue to prioritise the implementation of the economic measure to cushion the impact of the rising cost of living,” Sumana said.