Bank Negara Malaysia released the country’s latest GDP quarter figures showing growth moderated to +5.6%yoy in 1Q, but better than expected says research house MIDF.
The 5.6%yoy growth in 1QCY23 against the 4QCY22: +7.1%yoy growth is slightly above the research house and exceeded market expectations of +5.1%yoy. MIDF said it assumed more moderate growth in view of slower expansion in exports and industrial production, compared to the previous quarter. As expected, domestic demand remained the major driver of
growth, cushioning the impact of weaker external demand. On another note, the sharper fall in real imports kept net exports contributing positively to the 1Q growth. On a quarter-to-quarter basis, Malaysia’s seasonally adjusted GDP rebounded and rose by +0.9%qoq, alleviating concerns over the overall growth outlook after growth momentum weakened in the final quarter last year (4QCY22: -1.7%qoq). Nevertheless, the quarterly jump which was largely driven by increased consumer spending (+2%qoq) was limited by declines in government spending (-1.7%qoq), fixed investment (-1.4%qoq), and even weaker exports (-8.9%qoq) from the previous quarter.
In this sense, MIDF said it is keeping the 2023 GDP growth forecast at +4.2%. Considering external headwinds and tightening monetary policy in many economies, MIDF foresees Malaysia’s GDP growth to moderate at +4.2% in 2023. The softer growth is mainly due to a deceleration in external trade performance, taking into account an anticipated slowdown in global demand. Due to higher interest rates, pessimistic business sentiment as reflected in S&P Global PMI surveys, and elevated inflationary pressure, domestic demand in the US and EU will dampen this year.
Malaysia’s real export growth is projected at +3% (2022: +12.8%), partially supported by improving services exports via tourism activity. As China reopens sooner than predicted, the house is sanguine this will provide an extra boost to Malaysia’s services exports as well as tourism activity. However, we believe Malaysia’s external trade to continue benefiting from commodity exports especially palm oil, crude petroleum, and LNG as the prices of CPO and Brent crude oil stay elevated at RM3,500 per tonne and USD86pbd for 2023. Agriculture and mining sectors are projected to expand at +1% each while manufacturing output to grow modestly by +2.7% for 2023.
As for domestic sectors, construction sector posts stronger growth on the back of high development expenditure levels set by the government while the services sector gains from softening inflationary pressure and improving labour market conditions.
