Malaysia’s GDP Growth Gets Boost from Robust Domestic Demand


MIDF Research expects the upbeat domestic demand momentum to boost the first quarter (Q1) 2023 gross domestic product (GDP) growth and the overall expansion rate.

In a note today, MIDF said the domestic demand momentum was underpinned by a steady labour market, softening inflationary pressure, pick-up in tourism activities, and supportive economic policies.

The research house is also confident that Bank Negara Malaysia’s recent 25 basis-points hike in the overnight policy rate (OPR) to 3% will not derail domestic spending in the country.

Even though the OPR is back to its normalised rate of 3%, MIDF believes it will have “minimal effect” on domestic spending outlook.

“We are confident that Bank Negara Malaysia will keep the OPR status quo at least until this year,” it added.

It is also optimistic that retail trade growth could touch 8.9% for 2023, considering the macroeconomic outlook and improving domestic fundamentals.

“We believe the pent-up demand will continue into this year underpinned by improving labour market, stable inflationary pressure, accommodative economic policies and an uptick in the tourism industry.”

Supportive economic policies will bolster household consumption and retail trade spending to stay upward for this year, it said.

MIDF Research said consumer demand would remain robust as retail trade growth remained double-digit for the past 14 months despite inflation concerns and recorded sturdy performance.

According to the statistics department, wholesale and retail trade sales grew 11.9% year-on-year to RM138.5 billion, attributed to the retail trade sub-sector, which saw a 17.7%, or RM8.8 billion, increase in sales to RM58.7 billion for March 2023.

Rebound in the tourism sector

MIDF is also positive on the fast recovering tourism sector. It said March saw international passenger movements at three million, approximately reaching 66.2% of the February 2019 level and the highest since February 2020.

“March 2023 saw a strong pick-up of passenger movements, thanks to long school holidays.

“Pre-pandemic, 50.7% of Malaysia’s airport passenger traffic was contributed by international travellers, 25% by Asean and 25.7% by non-Asean destinations,” it noted.

MIDF expects airport passenger movements to improve in 2023, underpinned by borders reopening by China and Japan.

“The recovery towards the 2019 level is still a long journey despite the reopening of Malaysia’s international borders since last year. Our view is that the earliest for passenger traffic to reach the 2019 level will only be by 2024,” it added.

MIDF Research said the pick-up in tourism activities would be led by China’s tourists, the recovery of the labour market, and softening inflation rate.

Source: FMT