BMI, a Fitch Solutions company, now expects annual GDP growth to touch 4.2%, up from its previous prediction of 4%.
It said the upward revision was based on the better-than-expected 5.6% growth in the first quarter of this year (Q1 2023).
“Malaysia’s Q1 performance was well above consensus and its own expectations of 4.8%,” BMI noted.
However, it was quick to point out that the picture was “by no means upbeat”. “The latest (growth) figure still corresponds to a sharp slowdown, of 1.7% in Q4 2022,” it said.
BMI said in its outlook report on Malaysia that on a seasonally adjusted basis, the 0.9% quarter-on-quarter (q-o-q) rebound was nowhere large enough to reverse the 1.7% contraction.
The research company expects private consumption to grow 5% this year, easing significantly from 11.3% achieved in 2022 due to a decline in household savings and tighter monetary conditions.
BMI said the economic boost in the second half of 2022 (H2 2022) stemming from the base effects and pent-up demand that came with the easing of Covid-19 restrictions had eased.
“Households have drawn down their savings significantly since April last year,” it said.
It said the recent announcement by Prime Minister Anwar Ibrahim that further withdrawals from EPF would no longer be permitted and the decision by Bank Negara Malaysia (BNM) to raise the overnight policy rate (OPR) are likely to slow down private consumption further in the coming quarters.
It said businesses would also feel the impact of high borrowing costs. As a result, it expects growth in investments to slow down to 2.3% of GDP in 2023 from 7.5% in 2022.
The business landscape also remained challenging as purchasing managers’ index (PMI) for the manufacturing sector came in at 48.8 in April, marking the eighth consecutive month in which the reading has stayed below the 50 mark that separates contraction from expansion.
In addition, the business tendency survey has remained below 2022 levels and suggests that sentiment remains weak.
As for exports, BMI forecasts growth “to slow to 1% in 2023 from 12.8% in 2022 amid a slowdown in the global economy”.
“Indeed, our global team is forecasting economic growth to ease from 3.1% in 2022 to 2.1% in 2023.
“On the upside, we believe that the semiconductor industry may start to bottom out in the second half based on past cycles, while the reopening of the Chinese economy should bode well for Malaysia’s tourism sector,” it said.
Overall, BMI said a stronger-than-expected economic rebound in China would bode well for Malaysia’s export-oriented economy since the people’s republic is Malaysia’s second-largest export destination, accounting for nearly 13% of total outbound shipments.