Economists Lower Malaysia’s GDP Forecast After Lackluster Q2 Growth

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Economists lowered Malaysia’s full-year gross domestic product (GDP) growth forecast on Monday after the Southeast Asian country’s second quarter growth missed expectations.

OCBC Treasury Research said in a note that it has reduced Malaysia’s 2023 GDP growth forecast to 4 percent year-on-year from 4.4 percent previously.

According to the research house, this reflects the weaker-than-expected first outturn of 4.2 percent.

Its second-half growth forecast remains unchanged at 3.7 percent, reflecting a bigger drag from anemic external demand conditions.

Its full-year 2023 forecast is now at the low end of Malaysian central bank’s 4-5 percent forecast range for the year.

For 2024, the research house also lowered Malaysia’s GDP growth forecast to 4.2 percent from 4.5 percent, as the drag from global growth is expected to persist.

UOB Global Economics and Markets Research also said in a statement that recognizing a more challenging external environment and reflecting a weaker second quarter GDP growth figure, it has put Malaysia’s full-year GDP forecast lower to 4 percent from 4.4 percent.

However, it continues to see some positive aspects that would help support growth in the second half.

According to the research house, drivers are likely to be domestic demand albeit a potential turnaround in the tech-cycle that could assist exports.

Other positive supports include improvements in the labor market, tourism recovery, resilient advanced economies, and peak of the rate hiking cycle.

The research house also anticipated more clarity on domestic economic policies and plans in the coming months that would help catalyze higher investments and Malaysia’s growth momentum.

Despite a sustained easing trend from its peak in the third quarter of 2022, UOB noted that Malaysia’s growth performance is not bad considering the negative external outlook and normalization of domestic demand as pandemic measures are lifted.

It said Malaysia’s domestic demand has fared well given the negative external outlook while foreign inflows persisted and the labor market improved.

BMI research house also said in a note that the weaker-than-expected reading for the second quarter leaves its 2023 growth forecast of 4.2 percent appearing too upbeat.

It said to achieve that, Malaysian economy must grow by an average of 4.1 percent in the second half.

This might prove challenging to attain against the backdrop of weak external demand and elevated interest rates, it said.

“Our forecast for the global economy to slow from 3.1 percent in 2022 to 2.4 percent in 2023 suggests limited room for Malaysia’s exports to recover in a material way in the second half,” said BMI.

The research house expects the weakness in Malaysia’s exports to have extended to the third quarter amid softer prices and demand for electronics and energy exports.

It said another headwind stems from El Nino, which since June has led to adverse weather conditions and weighed on commodity production.

The Malaysian central bank said last Friday that Malaysian economy expanded by 2.9 percent year-on-year in the second quarter, falling below the consensus expectation of 3.3 percent.

The latest figures correspond to a sharp slowdown from 5.6 percent in the first quarter.