Considering external headwinds and tightening monetary policy in many economies, MIDF said it foresees the Malaysian GDP growth to moderate to +4.2% for 2023. The softening growth it added will be mainly due to a deceleration in external trade performances as a result of slower global demand.
The research house in its 2023 outlook report, foresees the global economy to experience a slowdown rather than a recession next year. This will be due to higher interest rates and elevated inflationary pressure, demand conditions in the US and EU will dampen next year. Malaysia’s real export growth is projected at +2.8% (2022E: +12.5%), partially supported by improving services exports given the expectation of more robust tourism activity. If China were to reopen sooner than predicted, MIDF is sanguine this will provide an extra boost to Malaysia’s services exports as well as tourism activity. On the trade of goods, it believes Malaysia will continue to benefit from commodity exports especially palm oil, petroleum, and LNG as the average prices of CPO and Brent crude oil are forecasted to stay elevated at RM3,500 per tonne and USD96pb for the next year. Agriculture and mining sectors are to record an expansion rate of +1% each while manufacturing output is to grow modestly by +3% for 2023.
MIDF is also optimistic that the domestic economy will be fuelled by continuous upbeat consumer spending, further improvement in tourism-related activities, and revival of infra projects. Going into next year, we believe food inflation as well as overall price growth to trend lower following moderation in global commodity prices and a further easing in tight supply chain pressure, with headline CPI forecast at +2.3% (2022E: +3.0%). On top of that, Ringgit is projected to appreciate from an average RM4.38 per USD1 to RM4.30 as the Fed is set to taper down its hawkish stance in 2023. Consumer spending in Malaysia is to stay steady underpin by a stable inflation rate and the jobless rate is set to decline further to 3.5% next year, among others thanks to strong economic recovery in post-pandemic and returning of non-citizen workers. In addition, the trajectory of BNM monetary policy remains supportive of domestic spending and investment activities. MIDF is optimistic about the services and construction sectors growing by +5.3% and +4.8% for 2023 respectively.
With this new government, it is believed that Malaysia’s political temperature will come down, reduce uncertainties, improve market sentiments, and smooth policy implementation. However, it can’t be excluded that there are risks of political instability in the next five years especially if one of the major blocs were to leave the government.
External trade is still on positive growth. Looking ahead, MIDF views the external front as still on a challenging path, particularly with global economic slowdown fear, inflation bite, tightening monetary policy in many countries, and geopolitical risks in Europe & Asia. Hence, it foresees slight moderation in the export growth forecast from +28.7%yoy for 2022 to +9.2%yoy for 2023.
