KUALA LUMPUR (Jan 5): Kenanga Research has projected Malaysia’s economy to kick-start the year at a sluggish pace of 3.9% in 1Q2023 (4Q2022: 6.6%).
In an economic viewpoint note on Thursday (Jan 5), the research house said the impact of the global economic slowdown would pare down overall GDP growth for 2023 to a projected 4.3% (2022: 8.6%), mainly due to weaker external demand and waning discretionary spending as cost of living rises.
Meanwhile, it said fiscal support and China’s reopening prospect could limit the downside to growth.
“The newly-elected government is expected to continue employing a mild expansionary fiscal policy, with the continuation of various subsidies and the resumption of development projects to steer the country through the global growth slowdown.
“On the back of an improvement in fiscal management, as well as elevated oil and gas revenue, we project fiscal deficit to narrow to 5.0% of GDP for 2023 (2022: 5.7%),” it said.
Inflation
Kenanga said headline and core inflation are forecast to average at 2.5% (2022: 3.4%) and 2.3% (2022: 3.0%) respectively in 2023 due to the government’s cost of living initiatives, a stronger ringgit, slowing global demand, and an improvement in the global supply chain.
Ringgit
Kenanga said te monetary policy tightening cycle could end as early as January with Bank Negara Malaysia (BNM) expected to raise the overnight policy rate (OPR) by another 25 basis points to 3.00%, as the global economic outlook becomes increasingly unfavourable.
Meanwhile, it said the ringgit may weaken against the US dollar to around 4.48 in 1Q2023 due to the increasing BNM-Fed monetary policy divergence.
“However, moving into 2H2023, ringgit is expected to rebound and strengthen to around 4.11 by the end of 2023, mainly due to the expectation of a Fed pivot,” it said.
The research house said external downside risks to Malaysia’s growth remain, arising mainly from ongoing concerns about a recession in the US amid a hawkish Fed, as well as ongoing geopolitical tensions and a worsening energy crisis in Europe.
“Besides, surging Covid-19 cases in China could also spark fears about the emergence of new Covid-19 variants or subvariants.
“Nonetheless, China’s policy switch may eventually support growth going forward,” it said.