In a report today, the credit rating agency said it anticipates that soft global demand and other headwinds will continue to challenge the economic momentum in the second half of 2023 (H2 2023).

GDP growth, it noted, slowed down to 4.2% year-on-year (y-o-y) in H1 2023 from 10.4% in H2 2022 as global trade eased and the semiconductor downcycles bit into exports.

The volume of exports, meanwhile, declined by 6.4% y-o-y in H1 2023 attributed largely to a high base effect.

“Domestic demand, the key driver of economic growth, was also softer at 4.5% in H1 2023 compared to 9.9% in H2 2022, as spending behaviour normalised,” it said.

Furthermore, RAM Rating stated that the weakening momentum witnessed in the second quarter (Q2 2023) would probably continue for the rest of the year given the significant external headwinds.

“A spike in global food and commodity prices due to supply distortion by geopolitics or tariffs would be a key downside risk that could inflate domestic prices and hinder local consumption demand.

“Lacklustre global demand, aggravated in particular by China’s property crisis, could crimp Malaysia’s export growth,” it warned.

Recovery in 2024

Despite the bleak outlook, RAM Rating projects that the local economy will stage a slight rebound next year, with an estimated GDP growth of 4.5%-5.5%.

The resolution of labour shortage issues, it highlighted, could provide additional impetus to the growth of laggard sectors, such as agriculture and construction.

It added that recent data indicates that the current downturn in the electrical and electronic sector is bottoming out, which may boost exports next year.

“Bets are now increasing on a soft landing for the US economy, leading to possibly less severe global slowdown,” it noted.