Economists: Malaysia’s economy to maintain growth trajectory in the second quarter 

KUALA LUMPUR, Aug 11 — Malaysia’s economy is expected to maintain its growth trajectory in the second quarter of the year (2Q 2023) albeit at a moderate rate of between 2.9 per cent and 4.2 per cent as high base effect kicks in, according to banks and research houses.

The full-year Gross Domestic Product (GDP) projection of between 4.0 and 5.0 per cent remains intact.

The 2Q 2023 projection number is seen as moderate compared with the 8.9 per cent GDP growth recorded in the second quarter 2022, lifted by labour market improvements, borders reopening and policy assistance.

The Malaysian economy expanded by 5.6 per cent in 1Q 2023 underpinned by broad-based growth across all sectors especially services and manufacturing, which grew by 7.3 per cent and 3.2 per cent, respectively.

Bank Muamalat Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid was upbeat with the 2Q 2023 performance outlook as he anticipates a 4.2 per cent growth.

Bank Negara Malaysia is scheduled to release its economic and financial developments for 2Q 2023 on Aug 18, 2023.

Bank Islam meanwhile set the projection at 3.7 per cent GDP growth, saying that this would mark the slowest year-on-year (y-o-y) growth since 4Q 2021 when the government lifted most of the Covid-19 restrictions.

“Private consumption, the mainstay of the economy, looks to have remained robust, supported by festive spending, gradually easing inflation, solid labour market conditions and improved tourist arrivals.

“However, the growth rate is likely to be slower on tighter financial conditions, with retail sales decelerating to 7.8 per cent in 2Q 2023 (1Q 2023: 19.5 per cent),” chief economist Firdaos Rosli told Bernama.

CGS-CIMB Securities Sdn Bhd estimated the 2Q23 GDP growth to expand by 3.3 per cent y-o-y, led by the services and construction sectors, while manufacturing and agriculture decelerated.

RHB research, via its note recently, has revised its forecast downward to 3.5 per cent versus the previous estimate of 4.5 per cent, in view of the weaker-than-expected performance in both manufacturing and services sectors’ activities.

In its note, Maybank Investment Bank Bhd estimated 2Q 2023 growth of 3 per cent, alongside a current full-year real GDP growth forecast of 4.5 per cent.

Hong Leong Investment Bank, however, gave a slightly lower projection which is at 2.9 per cent y-o-y, weighed down by moderation and contraction across all sectors.

It also said that while private consumption is expected to moderate, it is anticipated to remain the key driver of growth.

“We expect a moderation in the manufacturing sector, reflected by the slowdown in manufacturing Industrial Production Index in 2Q 2023 (+0.1 per cent y-o-y; 1Q 2023: +3.4 per cent y-o-y).

“This was largely due to the drop in export-oriented manufacturing activity (-1.3 per cent y-o-y; 1Q23: +2.2 per cent y-o-y) amid deteriorating international trade flows and slowing global growth,” it said in a note.

Nevertheless, domestic-oriented production showed continued expansion (+3.6 per cent y-o-y, 1Q 2023: +6.0 per cent y-o-y), albeit at a softer pace.

Growth in the services sector is also expected to moderate in line with the more modest volume of index of services showing (+5.0 per cent y-o-y; 1Q 2023: +8.8 per cent y-o-y).

The 2023 official growth target of 4-5 per cent still within reach

Bank Islam’s Firdaos Rosli said while the first half 2023 (1H 2023) may be volatile due to the global environment, Malaysia’s economy is anticipated to sail through 2H 2023 with strong household and intact economic fundamentals.

“We posit that the domestic sector will still be the main driver, boosted by a stable labour market condition that will continue supporting household spending.

“Apart from that, policy clarity will pave the way to improving sentiments for both businesses and consumers — this will be one of the crucial catalysts for economic growth,” he shared.

He said despite challenges arising from the external front, the bank believed that Malaysia’s full-year growth for this year is still achievable within the Bank Negara Malaysia’s (BNM) projection range of 4.0 per cent to 5.0 per cent, but at the lower bound of this range.

Sharing a similar view, brokerage firm CGS-CIMB said the domestic sectors would continue to anchor growth in the coming quarters, aided by cash assistance and government price interventions.

It also expects the central bank to maintain the overnight policy rate at 3.00 per cent at end-2023 owing to easing inflationary pressures as well as the likelihood of a global economic slowdown becoming more pronounced than previously expected, trickling into the export numbers.

RHB Research said moving into 2H 2023, the growth driver is expected to be rotated to the externally facing sector i.e. manufacturing sector, in tandem with a recovery of global economy and improvement in external demand.

“We expect the retail sales and consumer spending to normalise in 2H 2023 amid heightened living costs and the dissipation of pent-up demand,” it said.

Reviving tourism sector to further boost growth

Bank Muamalat’s Mohd Afzanizam said Malaysia continues to see a favourable trend from the tourism-related sector.

“For instance, tourist arrivals for the first five months had gone up by 545 per cent to 7.5 million. Airport passenger traffic rose substantially by 91.5 per cent for the first six months to 38.8 million and hotel occupancy rate in 2022 stood at 46.7 per cent versus 28.2 per cent in 2021.

“The recovery in these areas has yet to reach the pre-pandemic level, suggesting that there is still room for further improvement in 2H 2023.

“My estimate is that the GDP could come in at 4.5 per cent in 2023. I’m not surprised if it can exceed such a trajectory given the healthy momentum in domestic demand,” he added.

In line with Mohd Afzanizam, MIDF Research said the pick-up in tourism activities and supportive economic policies would continue boosting 2H 2023 GDP growth as well as the overall 2023 expansion rate.

“As of 1H 2023, Malaysia registered almost seven million airport passenger movements via local airports under Malaysia Airports Holdings Bhd in June. This was 77.4 per cent of the June 2019 passenger data.

“Domestic passenger movements were at 81.7 per cent of the same period in 2019. As for international passenger movements in June 2023, it was still recovering at 72.9 per cent of pre-pandemic level,” it said in a note.

During the pre-pandemic period, 50.7 per cent of Malaysia’s airport passenger traffic was contributed by international travels, 25.0 per cent by Asean and 25.7 per cent by non-Asean destinations.

As of 1H 2023, domestic travellers accounted for 55.3 per cent (average 2022: 71.7 per cent) vis-à-vis international destinations at 43.6 per cent (average 2022: 28.3 per cent), whereby 19.7 per cent were non-Asean and 23.9 per cent Asean.

“Moving forward, we expect airport passenger movements to improve in 2023, underpinned by borders reopening by China and Japan. The recovery towards the 2019 level is still a long journey despite the reopening of Malaysia’s international borders since last year.

“Our house view is that the earliest for passenger traffic to reach 2019 level will only be by 2024,” the research house said. — Bernama