Malaysia’s advance GDP estimate showed GDP rose 3.4% yoy in 4Q23 (3Q23: 3.3%), lower than CGSCIMB’s forecast of 4.3% and Bloomberg consensus’ forecast of 4.1%.
CGSCIMB, in their Economics Note today (Jan 22), said Malaysia’s economy expanded 3.8% in 2023, short of their estimates of 4.0%. The finalised 4Q23 GDP data is slated for release on 16 Feb 2024 (Friday).
Domestic demand to continue to anchor GDP growth in 2024
Despite the dismal 4Q23 GDP performance, CGSCIMB thinks this was mostly external-driven. The weak macro data over the past few months stemmed from trade reflecting sluggish global demand. This is also consistent with the manufacturing sector’s weak growth, which mainly comes from external sectors such as E&E, petroleum & chemicals, and wood products.
Domestic-oriented segments, i.e. F&B, transport and construction-related industries remained robust. Going forward, CGSCIMB thinks the external side may stay sluggish.
However, consumption may continue to anchor growth because of these factors: 1) While there is downside risk to consumption from the rollout of new taxes and subsidy adjustments, CGSCIMB thinks it will be gradual. In addition, the planned monthly cash handouts could offset new taxes adequately.
2) A boost from tourism, especially with the visa-free programme for tourists from India and China;
3) Robust labour market, with falling unemployment rate, high labour participation rate, and ample wage growth; and
4) Accommodative overnight policy rate (OPR).
As such, CGSCIMB maintains their GDP projection of 4.6% yoy in 2024.
E&E export growth falls, dragging total export growth
Released simultaneously, nominal export growth declined by 10% yoy in Dec 23, weaker than -6.1% in Nov 23 due to lower exports of manufactured goods especially the E&E segment (-12.1% yoy in Dec 23 vs. -13.7% in Nov 23).
Imports rose 2.9% yoy in Dec 23 due to higher demand for intermediate goods which climbed 10.1% yoy in Dec 23 (-5.6% in Nov). As a result, Malaysia registered a lower trade surplus of RM11.8bn in Dec 23. Exports slumped 8.0% yoy and imports fell 6.4% yoy in 2023 while trade surplus declined 16.4% to RM214.1bn.
Red Sea crisis poses limited risk to exports
The Red Sea crisis which disrupted shipments through the Middle East looks unlikely to be a major setback to Malaysia’s exports, in our view.
CGSCIMB thinks parallels can be drawn from the Suez Canal blockage that happened for 6-7 days in 23 – 29 Mar 2021. During that time, Malaysia’s export volume was largely unaffected, with Mar 21 export volume increasing 31.2% yoy (19.8% mom).
Import volume also remained robust at 10.1% yoy (16.1% mom).
This can be explained by the fact that Malaysia exports that pass through the Suez Canal (i.e. shipments to Europe) only formed 8% of total exports in 2021. This is not significant enough to make a dent to the trade numbers given the relatively smaller share of shipments.
Comparatively, though the Red Sea crisis is lasting longer than the Suez Canal blockage, the supply chain disruption has not been absolute either.
Attacks have been selective and ships can still pass through.
Regardless, CGSCIMB thinks this crisis is short-term in nature, and any shipment backlogs are likely to be offset by more shipments thereafter. Overall, CGSCIMB projects exports to rebound by 6.7% yoy in 2024F (2023: -8.0%).
