As of 1HCY23, Malaysia’s economy expanded by +4.2%. Local investment house, MIDF says it is not making any changes to Malaysia’s GDP growth forecast for this year as it expects the strength in domestic demand will be the main driver to support the economy to grow at +4.2%. The house adds that it will be a more normalised growth compared to the robust expansion +8.7% last year, which was boosted by the low base effect. Apart from the diminishing low base effect, the more moderate growth was mainly dragged down by persistent weakness in external demand as well as global manufacturing activities.
Looking at the continued rise in domestic spending, MIDF also opines the expansion can be sustained in 2HCY23 in view of positive labour market conditions, growing income growth, and supportive & accommodative economic policies. In addition, recovery in the tourism sector and tourist spending will also help to support growth in retail trade and consumer-related sectors such as F&B and hotels & accommodation. On the balance of risks, the house is more concerned that a more protracted contraction in global demand will derail external trade performance even more. In addition, geopolitical and trade tensions could also affect trade and investment flows at least in the short term.
Domestically, food inflation risk will be the main downside risk that could affect consumer spending, as the rising cost of living will reduce consumers’ purchasing power and discretionary spending.
