KUALA LUMPUR, Jan 16 — Malaysia’s consumption may be slowing down as the post-Covid-19 rebound, part-financed by the Employees’ Provident Fund (EPF) withdrawals may not be sustainable.
OCBC Bank chief Economist Selena Ling said in a statement on the bank’s Economic Outlook in 2023 that Malaysia’s 2022 gross domestic product (GDP) prints upside surprises suggested that the bank was too bearish, compelling the bank to upgrade its 2022 growth outlook from 5.7 per cent to 6.9 per cent.
However, going forward, Malaysia’s consumption support might not be as robust due to relatively high household debt level and the depletion of EPF statutory retirement funds.
The bank is thus striking a more cautious note on the 2023 export outlook, given the continued downdraft in the semiconductor sector.
“While Malaysia’s role in the testing and packaging part of the value chain, rather than the initial production side, may shelter it somewhat and with a time lag, the effect might come forth more strongly in 2023, especially if the down-cycle is prolonged,” Ling said.
This “cautiousness” on how 2023 consumption and export cycles are going to pan out underpins its view that the overall GDP growth is going to shift to a lower gear, coming in at 4.6 per cent against the likely 6.9 per cent in 2022, she said, adding that the slower growth will present “a more challenging landscape” for its new government.
“Given the need to bolster popular support, the government may have little choice but to pursue a relatively loose fiscal policy,” she said.
On the expenditure front, cash handouts and budget measures to reduce the cost of living are likely, she said, adding that a cut in fuel and food subsidies looks “dim” at least in the near term.
On the revenue side, the return of the Good and Services Tax (GST) will also be an issue as there is a need to reduce dependence on oil-related revenues.
Various Pakatan Harapan (PH) officials were adamant about not adopting GST before but the fiscal reality has to be grappled with, she surmised.
Meanwhile, on the monetary policy side, Ling said inflation concerns are likely to persist in 2023 and Bank Negara Malaysia is likely to hike the overnight policy rate (OPR) by 25 basis points (bps) each in the January and March 2023 followed by a pause after that.
Ling added that although the near-term growth looks rosy, Malaysia will be scathed in the event of a sharp global slowdown.
Globally, she said the 2023 outlook “looks and feels” like a recession with major economies possibly facing “a synchronised downturn” despite global growth forecast of about two per cent year-on-year.
Despite China’s reopening, the near-term outlook is “murky”, she said. — Bernama
