Malaysia: Domestic demand to spur growth

PETALING JAYA: Economists expect the gross domestic product (GDP) growth momentum to ease from the fourth quarter of this year (4Q22) after posting a robust growth of 14.2% in the 3Q22.

Having said that, they pointed out that the economic strength going forward would be buoyed by domestic demand.


The GDP has beaten Bloomberg’s median consensus of 12.5% y-o-y.

This is the strongest quarterly GDP performance since 2Q21, where the economy grew by 15.9%.

On a quarter-on-quarter (q-o-q) basis, the economy, however, grew at a slower pace of 1.9% q-o-q, compared with 2Q22’s growth of 3.5% q-o-q.

In 2Q22, the economy advanced by 8.9% y-o-y from a growth of 5% in 1Q22.

CGS-CIMB Research economist Nazmi Idrus said, moving forward, economic growth in 4Q22 and into 2023 would depend on the strength of demand from advanced economies, risk of the higher interest rate environment, escalation of geopolitical conflicts and supply chain disruptions.“With the improvement in the labour market as well as the reopening of borders, we believe that a higher number of tourist arrivals and domestic travelling will drive sustained domestic demand.

“In fact, despite the hike in interest rates, spending activities had remained resilient as we believe that government intervention in administered prices and heavy subsidies will continue to promote consumption growth.

“Overall, the GDP for this year could be slightly above our 7.3% year-on-year (y-o-y) target, but a revision will be out in our December outlook report. We are also maintaining our 2023 forecast GDP growth at 5% for now,” he added.

Next year, Nazmi said the research house would be pricing in a further two 25 basis points (bps) in rate hikes, putting the end-2023 forecast overnight policy rate at 3.25%.

Meanwhile, Bank Negara expects the full-year 2022 growth to exceed the 7% projected earlier due to the healthy growth in the first nine months of this year.

Under Budget 2023, the GDP growth is expected to be between 4% and 5% for 2023 compared with between 6.5% and 7% for this year.

Nazmi said the current account balance would remain in a substantial surplus, underpinned by the healthy economic fundamentals and supported by the diversified nature of exports as well as the robust tourism sector. To this end, Nazmi has maintained his 2022 current account surplus forecast at 1.7% of GDP (2023: 2.1%).

According to AmBank Research group chief economist Anthony Dass, although the 3Q22 number is strong, headwinds are expected to kick in from 4Q22.

He noted that there are signs of stress in the manufacturing sector, adding that trade activity is expected to be weaker due to slower economic activity on the external front including from Malaysia’s major trading partner China.

“The export and import numbers have been slowing down since August. Price pressure in selected manufacturing sectors is still elevated, particularly those in the production of textiles, wood and wood products, paper and paper products, basic pharmaceutical products, non-metallic mineral products, electrical, machinery equipment, and motor vehicles.

“This is partly due to the shortage of key products and weaker currency,” said Dass, who is also a member of the Economic Action Council Secretariat.

With the rising cost of living as well as business costs, he said the likelihood of the 4Q22 GDP slowing down is high.

“Headwinds are expected to remain as we move into 2023,” he said.

The overall GDP growth for 2022 would be between 8.5% and 9% with 4Q22 growth would hover around 6% to 8%. A slower GDP growth of 4.5% is expected next year as downside risks become more pronounced.

Hong Leong Investment Bank Research has revised upwards its 2022 GDP forecast to 8.2% y-o-y following the strong 3Q22 GDP and the better-than-expected economic releases.

“Although we still expect growth to moderate in 4Q22 following the absence of base effect and weakening external demand, the economy is expected to continue to be supported by domestic demand amid the improving labour market situation.

“Following the darkening global outlook, we downgrade our 2023 GDP to 4.2% y-o-y from 4.5% previously.

“ This is still in line with the official forecast range of 4% to 5% y-o-y growth,” the research house said.

Source: https://www.thestar.com.my/business/business-news/2022/11/15/domestic-demand-to-spur-growth