Malaysia’s economic growth prospects dim as global headwinds persist

by RUPINDER SINGH / pic TMR

ECONOMISTS expect Malaysia’s economic growth to slow down in the coming quarters due to external factors such as tighter global financial conditions, concerns about US banking and debt ceilings, geopolitical risks and mixed signals on China’s post-pandemic recovery. 

In addition, there are signs of normalisation and moderation in domestic economic activities that are expected to set in further post-Aidilfitri celebrations. 

This could also be compounded by subsidy rationalisation measures in the second half of the year (2H23), which could increase consumer price inflation, living costs and business operating costs. 

Furthermore, year-ago high base effects will also weigh on the year-on-year growth momentum from the second quarter of 2023 (2Q23) onwards, with real GDP growing by 8.9% in 2Q22, 14.2% in 3Q22, and 7% in 4Q22. 

Despite these factors, UOB Global Economics & Markets Research economists Julia Goh and Loke Siew Ting have raised its full-year GDP growth forecast for 2023 to 4.4%, reflecting the effects of better-than-expected 1Q23 GDP outturn, while keeping an average GDP expansion of around 4% for the rest of the year. 

MIDF Amanah Investment Bank Bhd (MIDF Research), on the other hand, has kept its 2023 GDP growth forecast at 4.2%. Considering external headwinds and tightening monetary policy in many economies, the research firm foresees Malaysia’s GDP growth to moderate at 4.2% in 2023. 

OCBC Treasury Research senior Asean economist Lavanya Venkateswaran also expects some knock-on impact from weaker external demand onto domestic demand, particularly investment spending, while consumption expenditures moderate. 

As such, the research firm maintains its 2023 GDP growth forecast of 4.4%, implying a sharper slowdown for the rest of the year but still within Bank Negara Malaysia’s (BNM) 4%-5% forecast range. 

In terms of monetary policy implications, with growth and inflation slowing, the research firms expect BNM to keep policy rates unchanged at 3% for the rest of 2023. 

Despite the expected slow-down in economic growth, there are some bright spots that could provide an upside to the estimates. 

These include more resilient growth across advanced economies, stronger and more sustainable China recovery, improving investments, particularly for infrastructure development and ramping up of existing projects, higher tourism activity, lower unemployment rate and supportive policy measures including a gradual removal of subsidies. 

MIDF Research believes that Malaysia’s external trade will continue to benefit from commodity exports, especially palm oil, crude petroleum and LNG as the prices of CPO and Brent crude oil stay elevated at RM3,500 per tonne and US$86 barrels per day (pbd) for 2023. 

Agriculture and mining sectors are projected to expand at 1% each while manufacturing output is expected to grow modestly by 2.7% for 2023. 

As for domestic sectors, the construction sector is expected to post stronger growth on the back of high development expenditure levels set by the government, while the services sector is expected to gain from softening inflationary pressure and improving labour market conditions. 

Despite a 5.6% growth in Malaysia’s GDP for 1Q23, the FTSE Bursa Malaysia KLCI (FBM KLCI) finished lower for the fourth straight session last Friday, decreasing by 2.26 points or 0.16% to 1,422.92. 

The index fell by 8.12 points last week, with 500 losers, 346 gainers, and 417 unchanged counters. Approximately 2.74 billion shares, worth RM1.8 billion, were traded. 


  • This article first appeared in The Malaysian Reserve weekly print edition