KUALA LUMPUR, Jan 12 (NNN-Bernama) — Standard Chartered Bank has forecast that Malaysia’s gross domestic product (GDP) growth is likely to ease to 4.0 per cent this year following 2022’s 8.8 per cent estimate.
Its chief economist, Asean and South Asia, Edward Lee said the expected growth slowdown is partly due to an unfavourable base and the normalisation of post-COVID pent-up demand.
“External demand is likely to be weaker, affecting trade-related sectors. In addition, the peaking of the global electronics cycle will weigh on the electronics sector, in our view,” he told a media briefing on Global and Malaysia Outlook for 2023 here Thursday.
Domestically, he said, higher interest rates may dampen private investment sentiment, especially given the gloomy global outlook, while higher household debt-servicing costs may weigh on discretionary spending.
“The tourism recovery should be a growth tailwind for Malaysia. Inbound tourism accounted for circa 8.0 per cent of GDP pre-COVID. Tourist arrivals stood at only 50 per cent of pre-COVID levels in end-July.
“A tourism rebound should boost the recovery in tourism-related sectors such as food and beverages and accommodation services, which remain below pre-COVID levels,” he said.
Meanwhile, Lee said the manufacturing sector might see slower activity in externally oriented segments such as electronics. Still, domestically oriented sectors such as consumer- and construction-related segments may see good demand.
He said the construction sector remains one of the slowest to recover from COVID-19, but a return of foreign labour supply should support its growth in 2023.
“We expect household consumption to remain steady amid a stable labour market. Broader growth concerns may affect investor sentiment, but the commencement of large new projects such as mass rapid transit 3 (MRT3) and the Sarawak-Sabah Link Road should support public investment.
“Buoyant foreign direct investment (FDI) over the last few quarters should also support investment activity. We project headline consumer price index (CPI) inflation at 3.1 per cent in 2023, moderating from 3.4 per cent in 2022, on negative base effects and lower food and energy prices in 2023,” he said.
Adding to that, Lee said the bank’s 2023 inflation forecast assumes that the fuel subsidy will be adjusted in a measured and targeted manner in the second half (2H) of 2023.
“We estimate that at a Brent price of US$100 per barrel and if only 20 per cent of RON95 fuel users were targeted, headline CPI would increase by just 0.9 per cent on an annual basis, or by half of that amount if new prices were imposed in 2H 2023,” he said.
On the overnight policy rate, he said Standard Chartered expects Bank Negara Malaysia (BNM) (central bank) to hike rates again in January by 25 basis points (bps) to 3.00 per cent, before pausing in March.
“After that, we expect a 25bps hike in May, assuming the government has announced some form of subsidy adjustments for 2H 2023. The risk to our call is an earlier final hike in March to 3.25 per cent.
“A terminal rate of 3.50 per cent would likely require growth to remain robust, wage pressures to intensify, and rationalisation of subsidies to be more aggressive than we currently expect. We view rate-hike increments of 50bps as a very low probability,” he said.
On balance, he said the investment bank sees room for BNM to at least reverse COVID-induced rate cuts (the pre-COVID policy rate was 3.0 per cent), before pausing in March to allow time for earlier tightening to take effect.
— NNN-BERNAMA
