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BMI: Malaysia's weak 2Q2023 growth suggests headwinds persist

August 21, 2023
The Edge
5 mins read

KUALA LUMPUR (Aug 21): BMI, a Fitch Solutions company, said the weaker-than-expected reading for the second quarter of this year (2Q2023) leaves the firm's prevailing 2023 growth forecast of 4.2% appearing too upbeat.

To achieve that, the economy must grow by an average of 4.1% in the second half of 2023 (2H2023), it said.

In a note on Aug 18, the firm, however, said this might prove challenging to attain against the backdrop of weak external demand and elevated interest rates.

“Our forecast for the global economy to slow from 3.1% in 2022 to 2.4% in 2023 suggests limited room for Malaysia’s exports to recover in a material way in 2H2023.

“We expect the weakness in Malaysia’s exports to have extended to 3Q2023 amid softer prices and demand for electronics and energy exports,” it said.

BMI said another headwind stems from El Nino, which since June has led to adverse weather conditions and weighed on commodity production.

“Meanwhile, we expect high interest rates to impede domestic activity.

“We think that Bank Negara Malaysia is comfortable leaving its overnight policy rate at 3% for the rest of the year, suggesting that restrictive monetary conditions will persist for some time and that the current strength in consumption and investment will wane off gradually,” it said.

BMI said the breakdown of the latest gross domestic product data illustrates an uneven recovery. The main drag on headline growth stemmed from real exports of goods and services, falling 9.4% year-on-year (y-o-y) and subtracting 7.1 percentage points (pp) from headline growth.

It said imports fell by a sharper 9.7% y-o-y and subtracted 6.9pp from growth.

“This underscores the ongoing impact of tepid global demand on Malaysia’s export-oriented economy.

“Meanwhile, private consumption remains a bright spot, rising 4.3% y-o-y and adding 2.6pp to growth, while gross fixed capital formation rose 5.5% y-o-y, contributing 1.1pp to headline growth,” it said.