KUALA LUMPUR, Feb. 13 (Xinhua) -- Economists said on Monday that Malaysia's growth is to moderate in 2023 amid weak external demand after the country registered an economic growth of 8.7 percent in 2022.
Hong Leong Investment Bank Research said in a note that in view of the external headwinds and diminishing base effect, it maintained its expectation for Malaysia to grow at a more moderate pace of 4 percent this year.
Nonetheless, it said China's recent reopening is anticipated to help push the recovery in tourist arrivals and lend some support to export growth.
Domestic demand is also expected to continue to support growth, albeit at a more moderate pace, amid the continued gradual recovery in the labor market.
As for the Maybank Investment Bank, Malaysia's economic growth is expected to moderate to 4 percent this year after the 8.7 percent surge last year which reflected the positive impact of full economic opening.
The slower growth outlook, according to the research house, primarily reflects the effects of the high inflation and high interest rate on consumer spending and global economic downturn on external trade.
Offsetting the above headwinds include drawdown of household/individual "excess savings" and tourism recovery as buffers to consumer spending, positive foreign direct investment (FDI) growth momentum, and faster growth in China mitigating the downturns in United States and Europe.
Public Investment Bank Research also maintained Malaysia's GDP growth projection of 3.8 percent as it sees that external risks have clearly risen following concerns on a global economic slowdown.
"Going forward, following the stronger-than-expected pace of expansion in the fourth quarter of 2022, the sustainability of economic growth in 2023 will depend on the strength of demand from advanced economies," said the research house.
Despite the external uncertainties, it believes that the country's economy will continue to remain steady, underpinned by strong domestic demand as well as further improvement in labor market conditions.
Going into 2023, it expects Malaysia's economy to rely more on internally generated growth, where growth from private investment activities will likely be stimulated through continued capital spending, especially in the manufacturing and services sectors.
RHB Research also said in a note that it maintained its view that Malaysia's 2023 GDP growth will moderate to 4.5 percent amid risks stemming from weakness in external demand.
"While the economic momentum remained resilient in the fourth quarter of 2022 amid robust domestic activities, we began to see some signs of slowdown from the external front," said the research house.
According to the research house, the outlook for 2023 remains cautiously optimistic, supported by resilient domestic demand.
It said the consumer spending would be well supported by the resilient labor market conditions, albeit at a slower growth momentum due to dissipation of stimulus impacts and tightening financial conditions.
Labor market conditions remain robust since the reopening of the economy by April 2022, which resulted in reduction in unemployment and strong job creation, it added.
"The real weakness would be on trade performance as uncertainties from the global front are likely to drag on Malaysia's export growth," it said.
It also said the balance of risks to global growth remained tilted to the downside in the first half, with risks stemming from ongoing geopolitical tensions and weaker growth in major economies coupled with tightening of financial conditions.
Meanwhile, UOB Global Economic and Markets Research said it expects Malaysia's growth momentum to moderate further to 4 percent for the entire year of 2023.
"The overall outlook remains subject to downside risks, including more restrictive global monetary policy settings because of still high inflationary pressures and strong labor market, an escalation of geopolitical tensions, weaker-than-expected global demand and ongoing global tech down cycle," said the research house.
It opined that statistical comparison base effects may also come into play as most economic and social activities start to normalize after a year of full reopening since April 1, 2022.
Although China's reopening from Jan. 8 have spurred optimism for Southeast Asia's tourism sector and growth recovery this year, it said the impact may be more gradual in the first half amid capacity constraints and inflation risks.
On domestic demand, it said the unity government's pledge fiscal consolidation, i.e. through subsidy cuts and lower development allocation for Members of Parliament. Reducing national debt is also expected to affect government spending this year.
It also said the proposed targeted subsidy mechanism from the current blanket approach, coupled with the likelihood of further monetary policy normalization by Malaysia's central bank, could weigh on household consumption amid negative real wages.
Considering external headwinds and tightening monetary policy in many economies, MIDF Research also foresees Malaysia's GDP growth to moderate to 4.2 percent in 2023.
"The softer growth is mainly due to deceleration in external trade performance, taking into account an anticipated slowdown in global demand," the research house said in a note, adding that it foresees a global economic slowdown rather than recession for 2023.
Due to higher interest rates, pessimistic business sentiment as reflected in S&P Global PMI surveys, and elevated inflationary pressure, the research house opined that domestic demand in the United States and European Union will dampen this year.
According to the research house, Malaysia's real exports growth is projected at plus 3 percent compared to plus 12.8 percent in 2022, partially supported by improving services exports via tourism activities.
However, as China reopens, it is sanguine that this will provide an extra boost to Malaysia's services exports as well as tourism activities.
It also believes Malaysia's external trade to continue benefiting from commodity exports, especially from palm oil, crude petroleum and liquefied natural gas, as the prices of crude palm oil and Brent crude oil are to stay elevated at 3,500 ringgit (802.84 U.S. dollars) per ton and 96.5 U.S. dollars per barrel for 2023.
Agriculture and mining sectors are projected to expand at 1 percent each while manufacturing output to grow modestly by 2.7 percent for 2023.
As for domestic sectors, construction and services are projected to expand by 4.7 percent and 5.5 percent, respectively. ■