KUALA LUMPUR (Jan 6): Malaysia’s gross domestic product (GDP) growth is expected to moderate to 4.2% in 2023 as the growth environment will become more challenging amid more treacherous global headwinds.

MARC Research in a report on Friday said that there is still a lingering risk of Ukraine-Russia conflict which could worsen and cause further global supply chain disruptions.

“As it stands, the IMF (International Monetary Fund) expects more than a third of the global economy to contract in 2022 or 2023,” said the research outfit in the report.

Nevertheless, MARC said it remains optimistic, albeit cautiously, over growth prospects in 2023 given the well-diversified nature of the Malaysian economy and its proven track record of withstanding shocks.

“We expect the country’s relatively well-developed infrastructure, competitive manufacturing and services sectors, and substantial natural resources to continue supporting growth and keeping the economy resilient overall,” the research firm’s analysts Lee Si Xin and Quah Boon Huat said.

The analysts foresee private consumption growth momentum slowing to 5.1% in 2023 compared with 11.1% last year, adding that the high cost of living is extremely concerning.

Lee and Quah also foresee downward pressure on private investment growth momentum, which is expected to lower to 2.3% in 2023 against 5.7% in 2022.

According to the 4Q2022 VISTAGE-MIER CEO Confidence Survey report, CEOs are bracing for a slow start to 2023 with lower expectations across the board in all indicators of their businesses, namely employment, capital investment, revenue and profit, the report noted.

They added that Malaysia’s pace of inflation remains manageable.

“In its (BNM) November Monetary Policy Committee (MPC) meeting statement, it said that headline inflation is likely to have peaked in 3Q2022 and is expected to moderate thereafter,” they noted.

However, according to the analysts, the latest available inflation data bears this out as November inflation came in unchanged from October’s 4%, compared with 3Q2022’s average of 4.5%.

“While we generally concur with BNM’s view, we foresee inflation averaging out to 2.8% in 2023, the low end of BNM’s projected range of between 2.8% and 3.3%.

“It remains to be seen as to what extent BNM will carry out its monetary policy normalisation going forward. Amid the increasingly precarious global backdrop, risks to our GDP growth outlook are inevitably tilted to the downside,” the analysts said.

The IMF expects global GDP growth to slow in 2023 to 2.7% compared with 3.2% in 2022.

Growth in the advanced economies is expected to weaken overall to 1.1% (2022E: 2.4%).

In the US, GDP growth will likely slow to 1% (2022E: 1.6%) against a backdrop of likely further interest rate hikes going forward as inflation remains above the US central bank’s 2% long-term target.

In Europe, the IMF expects GDP growth to also weaken, albeit more significantly, to 0.5% (2022E: 3.1%).

Germany, the area’s largest economy, is expected to see its economic output contract by 0.3% compared to 2022’s estimated expansion of 1.5%, largely because of spillover effects from the Ukraine-Russia conflict.

“In emerging and developing Asia, however, growth is expected to accelerate to 4.9% from this year’s estimated 4.4%, largely thanks to support from private consumption growth,” said Lee and Quah.

The IMF projects China’s GDP growth to accelerate to 4.4% (2022E: 3.2%), a likely scenario after Chinese policymakers announced 20 measures to ease Covid-19 restrictions.

“Global inflation remains a major concern. While it has been forecast to peak in late 2022, the IMF expects it to remain elevated for longer than previously expected. It projects global inflation in 2023 to moderate to 6.5% (2022E: 8.8%; 2021: 4.7%),” the duo said.