KUALA LUMPUR (Nov 10): RHB Investment Bank Bhd (RHB IB) said Malaysia will avert a technical recession.

In a note on Wednesday (Nov 9), RHB IB group chief economist and head of  market research Dr Sailesh K Jha and associate research analyst Wong Xian Yong said their third quarter of 2022 (3Q2022) GDP estimate is 10-12% year-on-year (y-o-y).

Jha and Wong revised their 2022 GDP growth estimate to 7% y-o-y from 6% on the back of stronger-than-anticipated consumer spending in 3Q2022 and resiliency of the consumer in 4Q2022.

“The balance of risks is tilted towards Bank Negara Malaysia hiking the overnight policy rate (OPR) at every MPC (Monetary Policy Committee) meeting in 1H2023 to 3.5%,” they said.

The two economists said despite all the “doom and gloom” prevalent in global financial market sentiment as it pertains to the outlook for US and global growth, with fears of a deep and prolonged recession in place, they are firmly in the camp that Malaysia’s business cycle is headed for a cyclical slowdown from 4Q2022 to 2Q2023 to trend or slightly below trend, on average.

“We don’t anticipate a technical recession on the horizon.

“Our estimate for Malaysia’s trend GDP (gross domestic product) growth is around 5% y-o-y. In 2H2023, we expect a recovery in Malaysia’s GDP growth led by the consumer,” they said.

Jha and Wong said Malaysia’s business cycle peaked in 3Q2022.

“Our leading indicator for GDP (LEI) suggests that the 3Q2022 print could be in the 10-12% y-o-y range and 4Q2022 could print around 2.30-5.83% versus the 1H2022 print of 7%.

“These forecasts have taken into consideration that our LEI has underestimated GDP growth by 1-2 percentage points, on average, historically.

“Hence, these are the forecasts generated from a top down perspective. From a bottoms up perspective, for 3Q2022 GDP we obtain an estimate of around 11% and for 4Q2022 GDP it’s around 4%,” they said.

Jha and Wong said they forecast that a technical recession is unlikely in 2023.

“The Malaysian stock market is in a sustained bear market on an annualised basis for more than two quarters.

“Consumer sentiment as measured by the Malaysian Institute of Economic Research Consumer Sentiment Index (MIER CSI) drops well below the 80-85 range.

“Quarterly real exports of electrical and electronic products exhibit contractions on a year-on-year basis,” they said.