Based on the available data, which covers more than 80% of Malaysia’s GDP, it is estimated that the economy expanded by 5.7% year-on-year (yoy) in quarter one 2023, softer compared to the 7% in quarter four 2022 but still relatively robust, said CGSCIMB in the recent Economics Note. The quarter one 2023 GDP data will be released on 12 May 2023 (Friday).
“From our perspective, the likely solid quarter one 2023 GDP performance, as well as expectations of further labour market recovery, could have been the triggers behind an earlier-than-expected rate hike by Bank Negara Malaysia (BNM) which resumed its monetary tightening cycle last week,” said CGSCIMB.
According to Maybank Investment Bank Bhd (MIBB) in a recent report, quarter one 2023 saw lower growth in Industrial Production Index (IPI), Volume of Services Index and Construction Works Value, plus drop in Crude Palm Oil (CPO) output.
Based on these indicators, MIBB estimated real GDP growth eased to plus 5.7% YoY in quarter one 2023. We expect the economy to expand by a slower 4.0% this year.
According to BNM, consumption and investment activities have remained resilient, while improvements in tourist arrivals will further boost tourism-related activities.
Given the likely strength in the economy in quarter one 2023 and the fact that BNM’s monetary policy stance remains ‘slightly accommodative’, CGSCIMB
maintain the assumption of a 25 basis points rate hike in the second half 2023, lifting the Overnight Policy Rate (OPR) further to 3.25% by end-2023.
Index of Services (IoS) – a measure of private services performance – expanded by 8.8% yoy in quarter one 2023, moderating from 11.7% yoy in quarter four 2022, supported by wholesale & retail trade, food & beverages and accommodation segment, possibly buoyed by the government’s accommodative measures in capping food prices, as well as ongoing cash transfers.
However, on a quarter-on-quarter (qoq) basis, the IoS contracted further at 3.0% in quarter one 2023, dragged by contractions in almost all sub sectors due to seasonal effects. Manufacturing index, a subset of the Industrial Production Index, grew by 4.1% yoy in Mar, slower than the 4.8% yoy in Feb.
In quarter one 2023, the sector’s growth moderated to 3.4%, supported by domestic oriented industries, such as F&B production, non-metallic mineral products and motor vehicles segments. Export oriented industries, such as electrical and electronics, machineries, petroleum and chemical products, also backed the increase in manufacturing output.
Performance of the agriculture sector likely softened in quarter one 2023, in our view, amid slower growth in CPO production during the quarter of 3.2% yoy. Rubber production continued to contract in quarter one 2023, at -17% yoy, but smaller than the -21.6% in quarter four 2022.
Mining index, also a subset of IPI, moderated to 2.1% yoy in quarter one 2023 on the increase in crude oil production and natural gas output. The construction work done rose 9.4% yoy in quarter one 2023, compared to 15.7% in quarter four 2022, driven by expansion in the non-residential segment and civil engineering’s +17.2% yoy in quarter one 2023. The residential segment, however, was back in the red in quarter one 2023, dragging down the overall sector.
