KUALA LUMPUR: Malaysia’s stellar economic performance momentum, which is anticipated to start moderating this year, can be mitigated by a sustainable growth model centred on investments and savings, say economists.
Following its strongest annual economic growth in two decades for 2022, Centre for Market Education chief executive officer Carmelo Ferlito said a growth model based on consumption and government spending is dangerous in terms of inflation and debt.
“From the demand side, the biggest slowdown is in consumption, which can suggest a further deceleration in the country’s first-quarter 2023 (1Q23) gross domestic product (GDP), in general.
“But it also may be signalling a restructuring toward what I hope is a more sustainable growth model, centred on investments and savings, rather than consumption and government spending,” he told StarBiz.
Malaysia University of Science and Technology economics professor Geoffrey Williams said headline growth is expected to range between 4% and 5% in 1Q23.
“However, seasonally adjusted growth shows weakness across the board, which must be handled delicately.”
Williams noted that the lockdowns that were imposed during the pandemic had “changed the structure of the economy”.
“This is not in line with conventional wisdom, so we need new eyes on the structural reforms needed in this new phase (post-pandemic).
“If we respond to the available data by thinking everything is fine, then we will be missing the underlying reality that we need economic reform. Any policy that follows the same philosophy of the last two-to-three years will cause lasting damage and hinder growth.”
Ferlito said a contraction in the GDP is to be expected, following what he calls “mistakes done” via the lockdowns during the pandemic.
“Plus, we have uncertainties on a global scale (geopolitics) and domestically, as we do not have any indication yet about policies which will be followed by the new government.”
AmBank Economic Research in a report said it expects Malaysia’s economic growth in 2023 to be supported by domestic factors.
“Private consumption will be the impetus for growth due to the improvement in the labour market and stable inflation, as well as robust consumer balance sheets to some extent.
“Overall, we expect GDP growth in 2023 to be at 4.5%, on the back of a 6.1% growth forecast for private consumption.”
On the overnight policy rate (OPR), AmBank said it expects another 25-basis-point hike to 3%. It expects inflation to come in lower at 3% in 2023, compared with 3.3% in 2022 largely due to the significant decline in commodity prices.
“However, we are wary of the situation involving food prices and the targeted petrol subsidies, as any changes with regard to these measures are likely to alter our view on private consumption this year and eventually our inflation outlook.”
Considering external headwinds and tightening monetary policy in many economies, MIDF Research expects Malaysia’s GDP growth to moderate to 4.2% in 2023.
“The softer growth is mainly due to a deceleration in the external trade performance, taking into account the anticipated slowdown in global demand. We foresee a global economic slowdown rather than a recession for 2023.
“Due to higher interest rates, a pessimistic business sentiment and elevated inflationary pressures, domestic demand in the United States and the European Union will dampen this year,” it said.
Additionally, it said Malaysia’s real exports growth is projected at 3% this year (compared with 12.8% in 2022), partially supported by improving services exports via tourism activity.
“As China reopens sooner than predicted, we are sanguine this will provide an extra boost to Malaysia’s services exports as well as tourism activity.
“However, we believe Malaysia’s external trade will continue to benefit from commodity exports, especially palm oil, crude petroleum and liquified natural gas, as the prices of crude palm oil and Brent crude oil are expected to stay elevated at RM3,500 per tonne and US$96.5 (RM418) per barrel, respectively, for 2023.”
Malaysia’s GDP rose 7% year-on-year in 4Q22, translating into an annual growth of 8.7%, the country’s highest since 2000 when the economy grew by 8.9% that year.
Ferlito said the growth was expected, given the dreadful conditions that had to be endured as a result of the pandemic.
“This is the post-Covid recovery. However, as we had predicted two years ago, the recovery would have been followed by a post-Covid inflation-led economic crisis.
“Data also showed a big slowdown in manufacturing in 4Q22, which is not a good sign.”
Williams, meanwhile, noted that headline growth data showed a slowdown in annual growth in 4Q22 by more than half, compared with 3Q22.
“On a quarterly basis, the growth rate also slowed overall. This is consistent with the general view of a slowing economy.
“It is still quite rosy with overall growth for the year at 8.7%, but we should not celebrate,” he said.