The quest of the Malaysian Government in 2023 is to hasten economic recovery which has to be more adaptive and one that shows greater resilience against any unforeseen crises in the future as the world continues to face various global and regional challenges including rising recession risk, the effects of the Russia-Ukraine conflict, high commodity prices and supply chain issues, that poses downside risks to economic growth.
2022 has been perhaps the most turbulent year nations have ever seen, and for good reason because it would be an uphill battle to maintain its growth momentum and consumer sentiment, amid the impact from the crisis as experts predict an inevitable economic slowdown
Government data shows the Malaysian economy is expected to grow at a slower rate of 4% to 5% in 2023 compared to the anticipated 6.5% to 7% growth in 2022.
MIDF Research also foresees a moderation in growth, primarily due to the deceleration in external trade performances.
“However, we are optimistic that the domestic demand will provide support to the economy fuelled by continuous upbeat consumer spending, moderation in price pressures, further improvement in tourism-related activities and possible revival of infrastructure projects,” it said in a note earlier in December 2022.
Outward Forces
The unsettling situation in Ukraine, uncertainty surrounding the real situation of China’s economy, higher cost of goods and inflation are among the major issues facing the nation as it goes in 2023, to add to these challenges for the year is also posed by changes to the new policies and political landscape and tighter monetary policy.
Growing Interest Rates
Bank Negara Malaysia (BNM), experts say, is to raise interest rates further in 2023, as it continues to tame rising core inflation beckoned by the rates determined by the United States’ Federal Reserve. From May to November 2022, the BNM had raised the overnight policy rate (OPR) by 100 basis points (bps) cumulatively to 2.75% from the record-low rate of 1.75%.
The Corporate sector expects BNM to hike the OPR by another 50 bps to 3.25%, bringing it higher than the pre-pandemic level of 3%, which means an increase in borrowing costs in 2023 for businesses and households.
A Bullish Stock Market?
CGS-CIMB Research said most of the pessimism is likely to be priced in by the first half of 2023 (1H23), with regards to a positive outlook on the stock market and expects the market perform better in the second half of the year.
The Research house forecasts a stronger FBM KLCI earnings growth of 12.8% in 2023, as compared to a projected contraction of 2.9% in 2022.
“We offer five investment trading themes for 2023, namely, beneficiaries of China’s reopening; beneficiaries of rate hikes; alpha picks; environmental, social and governance picks; and high dividend yielders. Potential bright spots are the return of foreign funds, merger and acquisition activities or synergies, China’s reopening, a stable government and clarity on government policies,” it said.
With 2023 seems to be a mixed year on some fronts, businesses and households will also have to deal with continued persistent inflation as Bank Negara Malaysia Governor Tan Sri Nor Shamsiah Mohd Yunus said Malaysia’s headline and core inflation in 2023 are expected to remain elevated, despite the continued easing of price pressures; to range between 2.8% and 3.3% in 2023.
Possible Higher Unemployment
Malaysia’s unemployment rate is also expected to rise this year but is supported by an upbeat momentum in the domestic economy and modest expansion in the external sector.
MIDF Research anticipates the unemployment rate to decline further to 3.5%, slightly higher than the pre-pandemic level of 3.3%, stating: “Steady expansion in primary sectors as well as construction and services will hold up more employment opportunities in 2023.”
