KUALA LUMPUR, Nov 10 — Bank Islam Malaysia Bhd expects Malaysia’s gross domestic product (GDP) to grow at 3.2 per cent in the third quarter of 2023 (3Q FY2023) amid resilient domestic demand despite external headwinds.
It said private consumption acted as the main driver of economic growth following the small uptick of 0.6 per cent in labour productivity year-on-year (y-o-y) during the quarter.
“This is aligned with the labour force participation rate, which remains high at 70.1 per cent in 3Q (2Q: 70 per cent). Distributive trade sales increased from 5.7 per cent in 2Q to 6.8 per cent in 3Q.
“Be that as it may, we posit that consumer spending is limited given moderation wages in both manufacturing (three per cent in 3Q versus 3.6 per cent in 2Q) and services (3.6 per cent in 3Q versus 3.9 per cent in 2Q) sectors,” Bank Islam said in a research note today.
It added that sluggish external demand is expected to cap growth, with exports plummeting by 15.2 per cent in 3Q compared to 2Q’s negative 11.1 per cent.
“Of note, Malaysia’s trade with its major trading partners continued trending in the red but recovering, denoted by the exports to the US (3Q: negative six per cent versus 2Q: negative 10.5 per cent), European Union (3Q: negative 6.3 per cent versus 2Q: negative 20.3 per cent) and China (3Q: negative 11.5 per cent versus 2Q: negative 9.2 per cent),” Bank Islam said.
The ebbing external trade is believed to be due to the fragile global economy amid high global interest rates environment, geopolitical tensions, and property woes in China.
“Thus, the trade surplus shrank by 9.1 per cent in 3Q compared to 2Q of negative 9.2 per cent, which will likely stifle the net exports figure,” it said.
For the fourth quarter of 2023 (4Q FY2023), Bank Islam anticipates the GDP to grow in the mid-two per cent y-o-y due to the higher-for-longer interest rate narratives by major central banks and dampened global demand, dragging down exports to trend in the negative for longer.
Bank Islam maintained the full-year GDP forecast at 3.7 per cent, representing a slowdown from the 8.7 per cent expansion recorded in 2022, partly reflecting the dissipating favourable base effects.
“While trade contribution is set to slow given the external challenges with the weakness in ringgit dragging the terms of trade lower further, domestic demand will remain resilient supported by the improving labour market conditions and the easing of inflation.
“We expect unemployment to gradually return to pre-pandemic level, declining to 3.4 per cent in 2023 from 3.8 per cent in 2022,” it said.
The bank also foresees the inflation to slow to 2.7 per cent in 2023 from 3.3 per cent in 2022 due in part to the high base effects and the easing of supply-chain constraints.
— Bernama
