KUALA LUMPUR, Aug 18 — Malaysia’s second quarter gross domestic product (GDP) growth of 2.9 per cent reflects a "business cycle slowdown” rather than an impending recession, in line with global trends, economists said.

Socio-Economic Research Centre executive director Lee Heng Guie said the slower pace of growth was widely anticipated and inevitable given the subdued high base effect from the second quarter of 2022 (Q2 2022), where the GDP grew at 8.9 per cent, and amid the current weaker external environment.

"Fundamentally we are still positive. Although consumption slowed down to 4.3 per cent (in Q2 2023), our labour market is still stable with the unemployment rate declining further to 3.4 per cent (in June), with declining headline inflation and an increase in wages which boosts consumers’ purchasing power,” he told Bernama.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid said the latest GDP print was below expectation and that the Malaysian economy is clearly susceptible to the external slowdown.

He said the sharp fall in real exports and imports to minus 9.4 per cent and minus 9.7 per cent, respectively, was the main factor for slower growth in the second quarter.

"Therefore, domestic demand will be the key driver for growth in the second half of this year (H2 2023).

"The base for H2 2022 GDP was high as the economy was growing at 14.1 per cent in the third quarter 2022 (Q3 2022) and 7.7 per cent in the fourth quarter 2022 (Q4 2022),” he noted.

Earlier, the Department of Statistics Malaysia announced that Malaysia’s economy expanded by 2.9 per cent in Q2 2023, supported by an improving labour market and the continued increase in domestic demand and tourism activities.

Chief statistician Datuk Seri Mohd Uzir Mahidin said the moderation during the quarter was partly due to weaker external demand amid the global technology downcycle, lower commodity production and the high base effect from Q2 2022.

Going forward, Mohd Afzanizam said given that consumers are likely to be cautious in their spending, the GDP might grow much slower in the second half of the year. In that sense, the risk that Malaysia’s GDP might grow below the 4.0 to 5.0 per cent projected growth is quite high, he added.

"Nonetheless, the (revival of) tourism-related sectors, along with the implementation of infrastructure projects would offset the weakness in global growth.

"As such, we believe that the monetary policy will continue to remain accommodative,” he said, noting that Bank Muamalat is maintaining its call for the overnight policy rate (OPR) to stay at 3.0 per cent throughout the year.

Similarly, Lee said the remaining quarters of 2023 would be challenging given the higher base effect compared with 2022. He added that to achieve the lower range of 4 per cent of the GDP target set for this year, the economy must expand at least between 3.5 per cent and 4.5 per cent for the remaining quarters.

The two economists agreed that the government’s initiatives and the rollout of development expenditure allocated for 2023 need to be sped up in order to crystalise the multiplier effects on the economy, thus ensuring recovery and firmer growth next year. — Bernama