KUALA LUMPUR, Dec 16 — Hong Leong Investment Bank Bhd Research (HLIB Research) projects Malaysia’s gross domestic product (GDP) growth to moderate to 4.0 per cent year-on-year (y-o-y) in 2023 as the base effects and initial boost from pent-up demand wane.
HLIB Research in a note today said their projection sits at the lower end of the government’s official target of 4.0-5.0 per cent as it expects growth to also be weighed down by further tightening of global monetary policies.
“This results in a weaker global growth environment, higher risk aversion in financial markets, and geopolitical tensions,” it said.
Nevertheless, Malaysia’s growth is expected to be supported largely by domestic demand, benefitting from the improvement in labour market conditions, and a continued influx of tourists following the ongoing recovery in the tourism industry.
The realisation of multi-year projects is also anticipated to spur the investment landscape.
Private consumption is expected to remain the key driver of growth in 2023, albeit at a slower pace, on the back of continued improvements in labour market conditions and income prospects.
The vibrant economic and social landscape following the easing of containment measures, particularly in tourism-related industries, should also support consumption activity in upcoming months.
The research outfit said government expenditure is expected to rise at a slower pace due to lower pandemic-related spending as the country transitions to endemicity.
Nonetheless, consumption will continue to increase due to higher spending on emoluments, attributed to the government’s initiative to absorb contract personnel into permanent staff, as well as the special additional annual salary increment for civil servants.
It said the current account surplus is expected to be widen slightly to RM48.0 billion or 2.6 per cent of GDP, largely on account of lower services deficit amid lower goods surplus.
Services deficit is anticipated to be lower due to higher arrivals of foreign tourists as more economies open their borders and relax Covid-19 border restrictions, notably in key economies like China.
“The goods surplus is expected to narrow on account of weaker global growth and lower commodity prices,” HLIB Research said.
In light of the improved Covid-19 situation and easing commodity prices, the government is expected to decrease its total expenditure to RM372.3 billion in 2023 from the expected RM385.3 billion in 2022.
It said the government is also anticipating a decline in total revenue to RM272.6 billion (2022: RM285.2 billion), due to the reduced Petronas dividend contribution after a significant increase in 2022.
“We opine that the government’s gradual fiscal consolidation plan and fiscal deficit target of -5.5 per cent of GDP is attainable on the assumption that the economy continues to expand,” it said.
Following the installation of a new government, along with a new finance minister, 2023 Budget is anticipated to be tabled in Parliament in early 2023, taking a cue from past experience in 1999/2000.
“At this point, we do not expect major changes to revenue forecast, but fiscal deficit may be lower than initial target of -5.5 per cent of GDP, following revised lower spending plans as government intends to review spending to reduce leakages,” it said.
On inflation, HLIB Research expects headline inflation to average slightly lower at 3.1 per cent y-o-y in 2023 as base effect dissipates.
However, the 3.1 per cent estimate still remains elevated and sits above pre-pandemic levels, propped up by both demand and cost pressures alongside anticipated changes to domestic policy measures.
— Bernama
