UOB sees Malaysia’s GDP growth at 8.5% in 2022, 4% in 2023

KUALA LUMPUR (Feb 8): UOB Global Economics & Market Research estimates Malaysia’s economy to grow by 6.3% year-on-year in the fourth quarter of 2022 (4Q2022), above its preliminary forecast of 5.5%  but lower than the Bloomberg estimate of 6.8%.

The research house’s forecast for the full-year is 8.5% (from its preliminary forecast of 8.3% and 3.1% in 2021, Bloomberg estimate: 8.6%).

Actual 4Q gross domestic product (GDP) numbers will be released on Friday (Feb 10).

For 3QFY2022, the country posted GDP growth of 14.2%.

The contraction in 4Q2022, UOB said, mainly reflects the fading effects of pent-up demand post reopening as well as subdued global demand as a result of aggressive global monetary policy tightening and prolonged Covid lockdowns in China.

“The potential quarter-on-quarter contraction would justify the surprise decision by Bank Negara Malaysia to hold interest rates unchanged on Jan 19, whereby the central bank cited a need to assess the impact of cumulative four back-to-back rate hikes (between May 2022 and Nov 2022) on the economy,” it added in a note on Wednesday.  

For 2023, UOB expects Malaysia’s growth momentum to moderate further to 4%. The official estimate is 4% to 5%.

“More restrictive global monetary policy settings, potential escalation of geopolitical tensions, weaker-than-expected global demand, ongoing global tech downcycle, and domestic policy changes are key downside risks to the country’s economic outlook ahead, while being weighed down by year-ago high statistical comparison base,” said UOB economists Julia Goh and Loke Siew Ting.

In 4Q2022, Goh and Loke expect the services sector to record an 8% growth year-on-year with the volume index of services maintained at a double digit rate of 11.7% from 23.1% in 3Q2021.

“This comes on the back of a further recovery in tourism-related sectors (i.e. food & beverages, accommodation, and transport & storage) amid improving labour market conditions,” they said.

The manufacturing sector is likely the second biggest contributor to overall GDP growth in 4Q2022 despite lower gains of 3.9% from 13.2% in 3Q2022, the economists said.

“The projected slowdown is partly due to year-ago high base effects and slower global growth prospects amid ongoing global tech down cycle, weighing across all domestic and export-oriented manufacturing sub-sectors.”

The mining sector, they said, is expected to hold up at a decent pace of 6.6% from 9.2% in 3Q2022 due to improved mining output by 6.2%. Both crude oil and natural gas output should rise by 4.4% and 7.5% respectively in 4Q2022.

Goh and Loke said the agricultural sector is expected to expand for the second straight quarter by 3%, driven by higher production of crude palm oil, while the construction sector is estimated to expand by 8.2% based on the 15.7% increase in total value of construction work done in 4Q2022.

“All four construction sub-segments continued to log improvement in their value of work done, with that of non-residential, civil engineering, and special trades maintaining double-digit gain,” they noted.

They also stated that domestic demand is projected to remain resilient even as households were still hit by high living costs and rising interest rates, thus providing support to the overall GDP in 3Q2022.

“Private consumption growth is projected to hold up at 10.5% (3Q2022: 15.1%) on the back of persistent government support and higher employment. Private investment is anticipated to recover further while government expenditure is set to be lifted by continued cash assistance, subsidy bills and election-related expenses,” they added.

The economists said external demand is anticipated to soften on account of subdued global demand, which is also expected to trigger stock withdrawal activities in 4Q2022.

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