HLIB analysts Felicia Ling and Athira Salith said GDP growth is expected to be weighed down by moderation and contraction across all sectors.
“Malaysia’s pace of economic expansion is expected to continue moderating for the rest of the year, taking into account the absence of base effect and pent-up demand,” the two analysts said.
The investment bank said the manufacturing sector has moderated in Q2 2023, reflected by the slowdown in manufacturing industrial production index (IPI).
The IPI grew only 0.1% y-o-y in Q2 2023 (Q1: 3.4%) due to the drop in export-oriented manufacturing activity amid deteriorating international trade and slowing global growth.
Ling and Athira noted that the global economic outlook has remained bleak, dampened by tighter credit conditions and sluggish economic data from China.
Similarly, the construction sector exhibited a slower expansion pace, growing 8.1% y-o-y in Q2 2023 (Q1: 9.4%) in terms of value of construction work done.
“Meanwhile, a contraction is expected in the mining sector as production declined by 2.8% y-o-y (Q1: +2.1%), due to lower crude petroleum and natural gas production,” said the analysts.
The agriculture sector, they said, also contracted by 6.9% y-o-y in Q2 2023 (Q1: +3.9%), largely due to the decline in palm oil production.
While the services sector also showed moderation, it was substantially supported by the rise in tourist arrivals, the Hari Raya celebration in April, as well as the post-pandemic shift of consumer spending habits.
“This is shown by the continued growth in wholesale and retail trade, which grew 4.1% y-o-y (Q1 2023: 9.5%), accommodation (33.3%; Q1: 55.8%) and recreational activities (12.9%; Q1: 16.2%),” they said.
On the expenditure front, while Malaysia’s private consumption is expected to weaken, it is said to remain the key driver of growth.
This, said HLIB, is due to the healthy labour market situation and continued wage growth in both the services and manufacturing sectors.
“Nevertheless, consumption activity is still expected to slow down as consumers tighten their discretionary spending in response to the high cost of living and absence of festival seasons,” the analysts said.