RHB Research: Malaysia’s 2Q23 GDP growth revised downward to 3.5%

by RUPINDER SINGH

THE economic landscape of Malaysia has experienced a revision in the second quarter of 2023 (2Q23), with RHB Research revising the GDP forecast downward to 3.5%, compared to the previous estimate of 4.5%. YoY. This revision comes in response to weaker-than-anticipated performances across both the manufacturing and services sectors.

The revision is attributed to lacklustre trade performance, notably highlighted by a marginal decline of 0.3% year-year (YoY) in industrial output during 2Q23. This stands in contrast to the 2.9% YoY growth observed in 1Q23.

Moreover, retail sales growth has displayed a slowdown, averaging 8.9% YoY during the April-May period, down from the robust 19.5% YoY growth witnessed in 1Q23. The deceleration is primarily linked to reduced spending on discretionary goods.

Looking ahead, RHB Research foresees a stabilisation in the Industrial Production Index (IPI) momentum in the upcoming months, with month-on-month growth projected to average around 0.3%-0.4%.

This projection aligns with the anticipated gradual improvement in trade activities and external demand.

Encouragingly, signs of a bottoming-out process have been discerned in trade, industrial production, retail sales, and PMI data in certain developed and emerging economies.

For the latter half of 2023 (2H23), RHB Research maintains a positive outlook, projecting GDP growth to average at 5.2% YoY.

The impending shift of growth drivers towards the externally focused manufacturing sector is expected to play a pivotal role.

The revival of the global economy and improvement in external demand are poised to propel the manufacturing sector forward.

The S&P Global Malaysia Manufacturing Purchasing Managers’ Index (PMI) demonstrated a marginal increase, edging up to 47.8 points in July 2023 from June’s 47.7 points.

Despite this, new orders remained subdued due to muted production, while input cost inflation accelerated.

In contrast, the IPI saw a slowdown, posting a 1.3% YoY growth in 1H23, a decline from the 6.7% YoY growth witnessed in the previous year.

June’s IPI marked a decline of 2.2% YoY, weaker than the Bloomberg consensus estimate of -1% YoY. The manufacturing and mining sub-sectors contributed to the negative growth trend, posting -1.6% YoY and -6.4% YoY, respectively. However, the electricity sector output managed to increase by 2.8% YoY.

On a month-on-month seasonally adjusted basis, the industrial output expanded by 2.2% in June compared to the 7.3% growth observed in May.

The manufacturing sector’s softening was driven by export-ori- ented industries, which saw a decline of 3.9% YoY.

Notably, the decrease was attributed to the manufacture of coke and refined petroleum products (-10.8% YoY) and the manufacture of computer, electronics and optical products (-4% YoY).

This downturn correlated with the negative export growth of 14.1% YoY recorded in June.

Conversely, domestic-oriented industries fared better, with output expanding by 4.1% YoY, driven by growth in industries such as the manufacture of fabricated metal products (except machinery and equipment) and the manufacture of food processing products.

Manufacturing sales, however, experienced a decline of 4.0% YoY in June, and the total number of employees engaged in the manufacturing sector increased by 2.1% YoY to 2.35 million persons.

Additionally, during the same period, the total salaries and wages exhibited a growth of 3% YoY, reaching RM8 billion in June, slightly down from May’s 4% YoY growth with a total of RM8.1 billion.