CGS-CIMB Forecasts Malaysia’s GDP Growth At 4.0% For 2023 And 4.6% For 2024, Banking On External Demand

panoramic view of Kuala Lumpur downtown in daytime

Malaysia’s GDP expanded 2.6% yoy on a seasonally adjusted (sa) basis in 3Q23 while its current account surplus sustained at RM9.1bn (2.0% of GDP). The execution of catalyst projects and Budget 2024 measures should bring additional stimulus to the nation’s economic activity, CGS-CIMB said this in its E Economics Note today (Nov 20).

CGS-CIMB maintains their 2024F GDP growth forecast at 4.6% (+4.0% in 2023F) citing proactive government spending will be a boon to the 3Q23 GDP as announced by Bank Negara Malaysia (expanded 3.3% yoy in 3Q23, in line with the reported advanced GDP estimates by Department of Statistic Malaysia (DOSM) earlier.)

Sequentially, the nation’s economy expanded 2.6% qoq on a sa basis, widening from 1.5% qoq sa in 2Q23 owing to continued improvement in labour market conditions, recovery in tourism activities and expansion of government spending in both supplies and fixed assets.

Sustained domestic demand buoyed qoq sa growth On a qoq sa basis, all expenditure components, except for private consumption and import, registered moderate growth in 3Q23 vs. 2Q23.

Private consumption growth contracted 0.7% qoq sa in 3Q23 (2Q22: +5.9% qoq sa), with the weakening likely due to the lag impact of BNM tightening its interest rate in May causing lower disposable income.

Meanwhile, government consumption rose 4.6% qoq sa in 3Q23 (2Q23: +4.0% qoq sa), stemming from higher public spending on supply & services.

On the supply side, all major sectors recorded higher qoq sa sector growth, particularly agriculture and mining sectors after registering negative growth for at least two quarters.

For agriculture, the sector growth was higher at 4.5% qoq sa (2Q23: -3.5% qoq sa), reflecting the receding labour worker shortages as well higher palm oil output owing to improved weather conditions. Financial account inflows contribute to current account surplus.

As for balance of payments (BOP), Malaysia sustained its current account (CA) surplus at RM9.1n in 3Q23 (2.0% of GDP). The surplus was supported by higher inflow in the goods account, at RM32.7bn in 3Q23, as reflected by Malaysia’s external trade performance during the quarter, where trade surplus was high at RM62.3bn vs. RM55.3bn in 2Q23.

Meanwhile, the services account registered a narrower deficit of RM10.3bn in 3Q23 due to higher travel receipts. Financial account saw a net inflow of RM14.9bn in 3Q23 after a net outflow of RM11.6bn in 2Q23 caused by an influx of financial derivatives and other investments.

CGS- CIMB anticipates Malaysia’s current account balance to remain in surplus, and at a decent level, underpinned by the nation’s still-healthy economic fundamentals and further supported by its robust tourism and diversified exports.

The Stock broking haouse maintains their 2023F CA surplus forecast at 1.6% of GDP (2024F: 2.2% of GDP).

External demand to support Malaysia’s economic growth

CGS-CIMB believes that Malaysia’s economic growth in 4Q23F and 2024F will depend on the strength of demand from the advanced economies, contingent on the risk of high interest rates and escalation of geopolitical conflicts.

They anticipate Malaysia’s exports to progressively increase in 2024F amid better international trade conditions and increased demand for its electric & electronic (E&E) products.

As for domestic demand, they believe the execution of catalyst projects in accordance with national master plans and the ongoing advancement of multi-year infrastructure projects will encourage investment activity. This will be aided by Budget 2024 measures that should bring additional stimulus to economic activity, in CGS-CIMB’s view.

They also anticipate tourism arrivals to increase in the upcoming quarters as more flights will be available to accommodate higher international travel demand.

Further, CG-CIMB believes employment and income growth would continue to be robust in 2024F amidst the ongoing development of economic activities supported by government policy measures.

Overall, they maintain their GDP growth forecasts at 4.0% for 2023F and 4.6% for 2024F.

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