OCBC Bank has lowered Malaysia’s GDP forecast for 2023 to 4% from its earlier forecast of 4.4%, this was after the latest GDP figure were reported by Bank Negara Malaysia.
The latest report indicated growth slowed sharply to 2.9% YoY in 2Q23 from 5.6% YoY in 1Q23, which OCBC said was a disappointing expectation. On a seasonally adjusted basis, the economy grew 1.5% QoQ in 2Q from 0.9% in 1Q23.
For 2024, ICBC is lowering the GDP growth forecast to 4.2% from 4.5%.
Drilling down into the data, the contribution of domestic final demand to headline GDP was only marginally lower at 4.2 percentage points (pp) in 2Q23 versus 4.3pp in 1Q23. The public sector, on account of higher consumption and investment spending, played a bigger role in supporting growth in 2Q. Specifically, public sector contribution to growth increased to 0.7pp in 2Q from -0.1pp in 1Q. By contrast, private sector contribution narrowed to 3.4pp in 2Q from 4.4pp in 1Q as private consumption spending slowed to 4.3% YoY from 5.9% in 1Q23. Notably, inventory de-stocking continued and shaved 1.2pp off 2Q GDP growth (1Q: -0.8pp).
Meanwhile, anaemic external demand conditions weighed heavily on exports in 2Q. The contraction in export growth worsened to -9.4% YoY from -3.3% in 1Q while import growth weakened to -9.7% YoY from -6.5% in 1Q. As a result, the net exports contribution turned negative (-0.1pp) in 2Q from +2.1pp in 1Q.
The weakness was more obvious on the supply side. Growth in all major sectors slowed in 2Q23 from 1Q23. These include the agriculture, manufacturing, construction, and services sectors.
OCBC is reducing its 2023 GDP growth forecast to 4.0% YoY from 4.4%, previously. This reflects the weaker-than-expected 1H23 outturn of 4.2%. Its 2H23 growth forecast remains unchanged at 3.7% reflecting a bigger drag from anaemic external demand conditions. Our full year 2023 forecast is now at the low end of BNM’s 4-5% forecast range for the year.
For 2024, GDP growth forecast is lowered to 4.2% from 4.5%, previously, as the drag from global growth is expected to persist. This nonetheless underscores an improvement in growth momentum relative to 2023.
Meanwhile, the banjk noted, the current account surplus widened to MYR9.1bn (1.9% of GDP) in 2Q23 from MYR4.3bn (1.0% of GDP) in 1Q23. This was mainly driven by narrower deficits on the services and primary income balance. The former was supported by higher inbound tourists and while the latter was driven by higher investment income from investments abroad. This more than offset the narrowed goods trade balance of MYR29.5bn versus MYR39.9bn in 1Q23. For 2023, we maintain our forecast for the current account surplus to narrow to 2.4% of GDP from 3.1% in 2022.
On the financial account front, the deficit widened to MYR11.6bn from MYR2.4bn in 1Q. This was driven by higher net outflows on the FDI and ‘other investment’ accounts, which more than offset net portfolio inflows.
OCBC noted the weakness on the external front continued into Q3 as underscored by the July trade data. Export growth remained weak at -13.1% YoY in July (June: -14.1%) while import growth was -15.9% YoY (June: -18.7%). The trade surplus, as a result, narrowed to MYR17.1bn from MYR25.6bn in June. Notwithstanding, the most encouraging aspect was the sustained improvement in electronics exports (7.3% YoY in July from 3.3% in June and 1.5% in May). Indeed, BNM is seeing tentative signs that the global tech downcycle is bottoming out.
From a monetary policy perspective, the bank said it does not think the weak 2Q GDP print will push BNM into considering a shift in its policy stance. As such, it still expect BNM to maintain its policy rate for the rest of 2023 and into 2024. A slowing GDP growth profile was always on the cards given the weak external backdrop. And while the extent of the slowdown in 2Q may have surprised to downside, OCBC expects BNM to remain focused on containing inflationary pressures and keeping financial imbalances in check.
