Leading Index Points To Softer Growth Momentum In 2H

Malaysia’s Leading Index (LI) fell again by -1.2%yoy, mainly due to a reduction in real imports of semiconductors and the Bursa Malaysia industrial index. Meanwhile, the economic condition remained higher than last year in Mar-23 albeit the rise in Coincident Index (CI) was more moderate at +3.4%yoy, with improvement in all indicators except capacity utilization in the manufacturing sector. As a forward-looking indicator, the continued fall in LI at -0.9%yoy in 1QCY23 suggests Malaysia’s growth outlook will soften in 2HCY23. While the slowdown in external demand already translated into weaker-than-expected trade performance, the house opines resilience in domestic spending will be key to sustaining Malaysia’s economic growth later this year.

As such research house MIDF is maintaining its 2023 GDP growth forecast at +4.2% as of now. With growth momentum to soften in the latter part of the year and external trade performance having performed weaker than expected, the house said it is keeping the GDP growth forecast unchanged at +4.2% for 2023. Moreover, MIDf added it also assumes the inflation outlook will remain elevated i.e. above the pre-pandemic level. Nevertheless, it also believes the resilience and sustainable growth of domestic demand will remain a key driver for Malaysia’s economic growth this year. This will be supported by positive job growth, growing business activity, recovery in the tourism sector, and higher tourist arrivals.

On the other hand, downside risks to the near-term growth outlook could come from external developments such as geo-political and trade tensions, volatility in the financial markets, and a sharper slowdown in global demand.

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