Malaysia’s maiden release of its advance GDP estimate showed GDP growth rose 3.3% yoy in 3Q23 (2Q23: 2.9%), higher than Bloomberg consensus’ median forecast (3.0% yoy, 2.7% yoy), cited CGS CIMB today.
Malaysia has seen an encouraging GDP growth in 3Q23 bolstered by tourism activities
According to the Department of Statistics Malaysia (DOSM), the growth was due to increase in tourism-related activities and construction work. On a quarterly basis, all economic activities rebounded to positive territory except for the mining segment which recorded its third consecutive contraction.
GDP forecast still at 4.0% in 2023F, anchored by domestic demand
CGSCIMB maintains their 2023F GDP growth forecast at 4.0% yoy following encouraging growth in 3Q23 advance estimates. Despite normalised interest rate, spending activities remained resilient as they believe that government intervention in administered prices and heavy subsidies should continue to promote consumption growth in 4Q23.
Further, recovery in foreign tourist arrivals and domestic travel will also drive domestic demand. Moreover, CGSCIMB expects public project rollouts to gain pace as they think the government is keen to make up for all the delays in project approvals in 1H23.
While growth performance is also tied to external demand, despite the subdued trade numbers released yesterday (19 Oct 2023), they believe the worst is almost over.
CGSCIMB, in its Economics Update today (Oct 23) said, potential massive stimulus from China seems likely to take place late 2023 which could improve world demand. Furthermore, key exports such as electrical & electronics are slowly starting to show reliable signs of improvement.
Lower Sep CPI amid softening food prices
Malaysia’s Consumer Price Index (CPI) rose 0.1% mom and 1.9% yoy in Sep 23 (vs. 0.2% mom and 2.0% yoy in Aug 23), lower than their and market expectations due to lower food and transport.
Meanwhile, core CPI was sustained at 2.5% yoy in Sep 23.
For food, price decreases were broad-based, except for rice prices which rose 5% yoy.
Transport component fell into negative territory again at -0.1% yoy, largely due to the decline in fuel prices. The price of RON97 averaged RM3.40 in Sep 23, compared to RM4.16 in Sep 22.
Service tax could add 10bp to CPI growth in 2024
The Budget 2024 announcement on 13 Oct 2023 proposed lifting the service tax rate from 6% to 8%. CGSCIMB’s calculations show that items affected by the service tax increase form 7% of total CPI weight, considering the numerous exclusions such as food services and telecommunications.
As a result, the tax hike may only boost annual CPI growth by 10bp.
There were no concrete measures announced in terms of targeted subsidies. Any material adjustment to targeted subsidies is likely to affect the CPI, especially in 2024.
CGSCIMB maintains their 2023F CPI projection at 2.8% yoy in 2023F and 2.5% in 2024F pending further updates on subsidy rationalisation measures.
