Additionally, it projected GDP growth for the fourth quarter last year (Q4 2022) to reach 5.7%.

Bank Islam chief economist Firdaos Rosli said this would be a better-than-expected forecast despite the political turmoil which began in early 2020 and subsided after the 15th general election (GE15) in November last year, which culminated in the formation of a multi-coalition government.

“Furthermore, the ringgit reached a historical high of RM4.746 (against the US dollar) in early November 2022, pressured by the widening interest rates and bond yield differentials.

“We posit that such compelling growth was bolstered by the continued expansion in domestic demand and a firmer recovery in the labour market, aside from the low-base effect factor,” he said in a note today.

Macroeconomic fundamentals ‘solid’

Firdaos said although the Malaysian economy would continue to grow in 2023 amid a global slowdown, a recession would be less probable to occur as the country’s macroeconomic fundamentals remain solid.

He said private consumption would continue to be the primary driver of economic growth throughout the year, in addition to China’s reopening prospects that could help limit the decline.

Firdaos also noted that private investment would remain contentious despite the overnight policy rate being lower than during pre-pandemic levels.

“That said, we project our economy to grow by 4.5% in 2023 sans the impact of China’s economic reopening and subsidy rationalisation.

“For the record, the latest multilateral development banks’ (forecasts) project Malaysia to grow between 4% and 4.4% in 2023,” he said.

Firdaos opined sustaining Malaysia’s post-pandemic growth rates would be key amid the global slowdown and impending state elections to ensure the government gains ample fiscal headroom to undertake reforms in the future.

Hence, he said the short-term policy goals would be more prominent than long-term ones in the coming weeks.

“The government is expected to outline some of these goals when re-tabling Budget 2023, and the remaining ones in the review of the 12th Malaysia Plan in Q3 2023.

“We believe the government will not rule out the re-implementation of the Goods and Services Tax and (keep) subsidy rationalisation cards close to its chest for now,” he added.

Maybank IB’s forecast

On another note, Maybank Investment Bank Bhd estimated real GDP to grow at 6% in Q4 2022, with full-year 2022 growth at 8.5%, but would decelerate to 4% this year.

The bank said that single-digit GDP growth persisted in January 2023, taking the cue from the downtrend in the manufacturing purchasing managers’ index.

This was also based on indicators suggesting slower growth in Q4, including the industrial production index, volume of services index and the value of construction works, it said.

Meanwhile, Hong Leong Investment Bank Bhd revised its Q4 GDP growth estimate upward to 6.8% from its preliminary estimate of 5.5% following the release of the latest indicators, adding the estimate would still point to a slowdown from the preceding quarter.

“Growth is expected to be weighed down by moderation in most sectors, including manufacturing and services.

“On the demand side, growth is anticipated to be buoyed by private consumption, albeit at a slower pace.

“In line with the revision, we see upside bias to our 2022 GDP forecast of 8.2%, pending the release of actual Q4 2022 print,” it said.