Citi Research: Malaysian economy to moderate to 4% in 2023

CITI Research analysts are forecasting for Malaysia’s economic growth to moderate to 4% in 2023 on base effects and external headwinds.

China’s reopening of borders could provide a substantial cushion against headwinds from the European Union (EU) and US recessions, said Citi Research in a statement today.

“We raised our 2022 GDP forecast to 8.7%, substantially above the Ministry of Finance’s (MoF) forecast of 6.5%-7%, and see a moderation to 4% in 2023,” said Citi Research head of Asean economics Kit Wei Zheng.

Going into 2023, it said, labour demand is expected to remain resilient with unemployment rates falling towards pre-Covid levels, though a full implementation of the 25% minimum wage hike from the second half of 2023 (2H23) could add to wage pressures, with unit labour costs further lifted by the cyclical slowdown in productivity. 

On the Bank Negara Malaysia’s (BNM) decision yesterday to maintain the Overnight Policy Rate (OPR) at 2.75%, Citi Research sees this as an intermittent pause, not just to allow for more time to assess the impact of earlier hikes, but also changes to the balance of risks from policy adjustments in the budget, as well as China’s reopening.

“With core inflation still seen elevated (despite moderating) and risks to the upside, we expect at least another 25 basis points (bps) hike in March, and another 25bps in May, with further hikes in 2H23 possible,” it said.

On the global front, Citi Research said it continues to see “rolling country-level recessions”, with high inflation and tight monetary policy likely to plague the outlook as geopolitical challenges persist.

The pace of global growth this year is likely to decline to just over 2%, nearly a percentage point weaker than last year’s near-trend performance, it added.

“In recent weeks, we have seen a dynamic transition in the global economy. China has abandoned its zero-Covid strategy; the euro area has enjoyed warm and windy weather, which has softened the blow from the gas shock; and recent US data have shown lower inflation but still-solid economic activity.

“Despite the recent good news, we judge that the global economy still has a tough year ahead,” it said. — TMR / pic HUSSIEN SHAHARUDDIN