PETALING JAYA: Proactive government spending, which was a boon to Malaysia’s gross domestic product (GDP) expansion of 3.3% year-on-year (y-o-y) in the third quarter of 2023 (3Q23), will continue to spur the country’s economic growth in the coming year.
The Malaysian economy expanded 3.9% y-o-y in the first nine months of this year, mainly due to the increase in the construction (7% y-o-y), services (5.7% y-o-y) and manufacturing (1.1% y-o-y) sectors.
However, agriculture and mining charted modest growth of 0.3% and 0.04% y-o-y, respectively.
Last Friday, Bank Negara governor Abdul Rasheed Ghaffour said: “Malaysia’s economic fundamentals remain strong and supportive of growth moving forward,” adding that GDP had exceeded pre-pandemic levels.
Despite the better-than-expected GDP numbers announced by Bank Negara, analysts are keeping their y-o-y growth targets of between 3.8% and 4% for this year and 4% and 4.8% in 2024.
“We maintain our 2023 GDP forecast at 3.8% y-o-y.
“Nevertheless, we see a pickup in GDP growth in 2024 to 4.8% y-o-y, following a broad-based recovery in the domestic economy and improvement in global trade,” said Hong Leong Investment Bank (HLIB) Research in a report.
Meanwhile, CGS-CIMB Research said the execution of catalyst projects in accordance with national master plans and the ongoing advancement of multi-year infrastructure projects will encourage investment activity.
This will be aided by Budget 2024 measures that should bring additional stimulus to economic activity.
“We believe that the country’s economic growth in 4Q23 and 2024 will depend on the strength of demand from the advanced economies, contingent on the risk of high interest rates and escalation of geopolitical conflicts.
“We anticipate Malaysia’s exports to progressively increase in 2024 amid better international trade conditions and increased demand for its electrical and electronic products,” it added.
The research house also anticipated tourism arrivals to increase in the upcoming quarters as more flights will be available to accommodate higher international-travel demand.
“Further, we believe employment and income growth would continue to be robust in 2024 amid the ongoing development of economic activity supported by government policy measures,” CGS-CIMB Research said.
Overall, it maintained its GDP growth forecasts at 4% for 2023 and 4.6% for 2024.
According to TA Research, the economy is expected to chart better growth in the final quarter, buoyed by the resilience of domestic demand as the labour market remains robust.
Improving labour market
Notably, the country witnessed a progressive decline in the unemployment rate, reaching a low of 3.4% in 2Q23, from 3.5% in the previous two quarters.
The positive trend in the labour market plays a crucial role in strengthening Malaysia’s economic stability.
“The anticipated economic upswing is poised to receive an additional boost from the ongoing resurgence in tourism activity.
“The government has set an ambitious target of welcoming 16.1 million tourists this year, projecting substantial tourism revenue exceeding RM49bil,” it added.
The research house noted that China’s sluggish economic recovery, coupled with the escalating risk of a broader global economic downturn, is poised to maintain pressure on Malaysia’s export-oriented industries.
“This is expected to have a more pronounced impact on both the manufacturing and services sectors than initially projected.
“Moreover, the overarching risks to global growth persistently lean towards the downside, with major economies contemplating additional interest rate hikes to counteract persistently high inflation.
“This move is likely to further tighten financial conditions.”
Despite positive signals from China, such as beating expectations in October for indicators like industrial output and retail sales growth, a closer examination reveals significant areas of weakness in the underlying economic landscape.
TA Research pointed out that China, as the world’s second-largest economy, grapples with challenges stemming from its distressed housing market, local-government debt risks, slow global growth, and geopolitical tensions, all of which have hindered momentum.
This is where Chinese authorities now face heightened pressure to implement additional stimulus measures.