Researchers Expect Malaysia’s GDP To Moderate In The Second Quarter

Due to a combination of both softening demand on both external and domestic industries and a more noticeable weakness in the industrial and agricultural markets, research houses expect that Malaysia’s Gross Domestic Product (GDP) will experience a marked decrease in growth compared to Q1.

CGS-CIMB Research projects the GDP  to expand by 3.3% year-on-year (y-o-y) in the second quarter of 2023, which is a marked decrease from a 5.6% y-o-y growth in the first quarter of 2023.

In their report, the research house stated that this is due to more noticeable signs of weakness in the industrial and agricultural sector.

“Signs of weakness became more pronounced in 2Q23, with the latest release of production and agriculture data pointing lower, especially for the month of June, dragging down the quarter’s average,” the research house said in a report released yesterday.

However, the report did note that the domestic sectors are remaining steady, which can be seen by the fact that  the services index recorded better quarter-on-quarter (q-o-q) performances for two consecutive quarters.

“In our view, despite the reduction in disposable income owing to the central bank’s tighter policy rate, the government’s ongoing efforts in price intervention and maintaining subsidies for key items have helped to cushion the cost burdens faced by the average Malaysian consumer.

“The risk of price pressures is also somewhat cushioned by a healthy employment rate, as well as further government cash handouts,” the research house said.

Going back to the performance of the agricultural sector, the research house pointed out several factors that might be a sign of the weakening of the sector.

“The performance of the agriculture sector likely deteriorated further in 2Q23. Crude palm oil production, which accounts for a third of agriculture output, declined by 6.9% y-o-y in 2Q23 (versus an increase of 3.2% in 1Q23), possibly due to workers’ holiday breaks during the Eid festivities.

“However, quarter-on-quarter (q-o-q) growth showed an improvement of 6.1% on the back of the easing labour shortage,” CGS-CIMB Research said.

In their report, CGS-CIMB Research also said that moderate GDP performance will likely continue in the third quarter of 2023.

“We expect the overnight policy rate to be maintained at 3% at the end of 2023, owing to easing inflationary pressures, as well as the likelihood of a global economic slowdown becoming more pronounced than previously expected, trickling into the export numbers,” it said.

Meanwhile, another research house, Hong Leong Investment Bank (HLIB) Research also estimated slower growth in GDP.

In their report, HLIB Research expects that private consumption will continue to be the key driver of growth.

“On the expenditure front, Malaysia’s private consumption is expected to weaken but remain the key driver of growth, underpinned by the healthy labour market situation and continued wage growth in both the services and manufacturing sectors.

“Nevertheless, consumption activity is still expected to slow as consumers tighten their discretionary spending in response to the high cost of living and absence of festival seasons.

“This is reflected by the softer retail sales posting for the quarter,” HLIB Research said.