BMI, a subsidiary of Fitch Solutions, has revised its expectations for Malaysia’s economic recovery in the upcoming quarters. The adjustment is due to the persistent effects of both weakening global demand and tight monetary conditions.
In a note released on August 22nd, the firm highlighted that Malaysia’s real GDP growth sharply decelerated to 2.9% year-on-year in the second quarter of 2023, down from 5.6% in the first quarter. This fall fell below both consensus and internal forecasts.
In response, BMI has reevaluated its projections, downgrading Malaysia’s anticipated real GDP growth for 2023 from the previous 4.2% to 4.0%. This reflects a significant slowdown from the robust 8.7% growth witnessed in 2022. The revised forecast is slightly lower than the consensus estimate of 4.2% for 2023.
The firm noted that the disappointing second-quarter performance casts doubt on the feasibility of the previously optimistic 4.2% growth prediction for the full year, implying that the economy would need to achieve an average of 4.1% growth year-on-year in the latter half of 2023. However, achieving this rate seems challenging given the dual challenges posed by weakening global demand and stringent monetary conditions.
Thus, BMI has taken the step of revising its 2023 forecast downward to 4.0%, reflecting the impact of these challenges and the contrast to the high growth of 8.7% in 2022. Their updated forecast is marginally lower than the general consensus estimate of 4.2% for 2023.
BMI identified the main driver of Malaysia’s economic resilience as consumption, yet it anticipates this strength will wane as the effects of tight monetary conditions permeate the economy.
Furthermore, the firm asserted that alongside internal hurdles, the continued weakness in global demand (forecasted growth of 2.4% throughout 2023) will also impede Malaysia’s export performance this year.
Net exports have already subtracted 0.7 percentage points from GDP growth in Q2, extending the -2.3 percentage points recorded in Q1. BMI’s year-to-date data revealed a consistent decline in exports by an average of 5% year-on-year across the first seven months of the year. The contraction was particularly sharp in June, at 14% year-on-year, although it somewhat eased to a 13% year-on-year contraction in July.
Nonetheless, BMI emphasised that the convergence of domestic challenges and global demand weakness might indicate that the worst of the economic downturn is now in the past.
