Malaysia's growth to lose momentum over coming quarters, says Fitch Solutions

Malaysia's growth to lose momentum over coming quarters, says Fitch Solutions
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KUALA LUMPUR (Nov 14): Fitch Solutions Country Risk and Industry Research has raised its forecast for Malaysia’s real gross domestic product (GDP) growth to 8.4% in 2022, from 5.9% previously, after the economy expanded by an average of 9.4% year-on-year (y-o-y) in the first three quarters of the year.

In a report last Friday (Nov 11), the firm, however, kept its 2023 growth forecast unchanged at 4%.

“Over the coming quarters, we expect that tightening monetary conditions, fading base effects and pent-up demand, as well as a slowing global growth environment will weigh on Malaysia’s economic growth momentum,” it said.

Fitch Solutions said Malaysia’s real GDP growth came in at 14.2% y-o-y in the third quarter of 2022 (3Q2022), up from 8.9% in 2Q2022, boosted by strong private consumption and investment, robust exports, and favourable base effects.

“The economic performance surpassed consensus and our expectations, and brought the average cumulative growth in the first three quarters of the year to 9.4% y-o-y.

“On a seasonally adjusted basis, growth came in at 1.9% q-o-q in 3Q2022, slowing significantly from 3.5% in 2Q2022,” it said.

Fitch Solutions maintained its view that over the coming quarters, Malaysia’s growth momentum will continue to weaken as credit conditions tighten further and pent-up demand fades.

Moreover, it said the outlook for exports will likely weaken on the back of a slowing global economy and as the semiconductor industry heads into a downcycle.

“Considering the latest growth print, we are revising our 2022 growth forecast to 8.4%, from 5.9% previously, but are keeping our 2023 growth forecast unchanged at 4%,” it said.

Fitch Solutions expects growth to have peaked in 3Q2022, and forecast the economy to expand by just 5.8% in 4Q2022, before decelerating further to an average of 4% in 2023 due to three reasons.

“First, we expect the growth boost from base effects and pent-up demand from the lifting of Covid-19 curbs to fade in 4Q2022, and especially going into 2023.

“Households and businesses have already drawn down on their savings considerably since April 2022, suggesting that the surge in aggregate demand in 2Q2022 and 3Q2022 is unlikely to be sustained.

“Furthermore, it is likely that fuel and food subsidies will be scaled back over the coming months as the government attempts to consolidate public finances, and this will likely weigh on household purchasing power going forward,” it said.

Accordingly, the firm forecast private consumption growth to slow significantly to 5% in 2023, from 11.5% in 2022.