Economists are keeping their 2023 growth estimates for Malaysia's gross domestic product (GDP) intact despite the country's industrial production index (IPI) seeing a wider decline in September — a 0.5% year-on-year contraction compared with a 0.3% decrease in August — largely due to a slowdown in the mining sector’s oil and gas activities.
HLIB Research said it maintained that Malaysia’s economy will grow by 3.8% year-on-year (y-o-y) in 2023, while Kenanga Research expects GDP to expand by 3.5% to 4%. Public Investment Bank predicted that GDP will grow by 4% in 2023.
In a note on Wednesday, HLIB Research said Malaysia’s industrial production is likely to stay soft for the rest of the year, weakened further by tight financial conditions. The dampened production is in line with the contraction of the global manufacturing purchasing managers' index (PMI) to 48.8 in October, from 49.2 in September, which reflects a further decline in new orders.
Meanwhile, Kenanga Research said it was expecting slower growth in the second half of 2023 at 3.1% and particularly weak growth in the third quarter, which it estimates is 2.9%, following the weaker PMI figure in October, coupled with the impact of higher interest rates in advanced economies on external demand.
“However, we believe growth will remain supported by a resilient domestic demand, as reflected by a steady and lower unemployment rate as well as a steady improvement in the tourism and transport sectors,” it said.
The research house also noted that the Department of Statistics Malaysia (DOSM) had on Oct 20 released its advanced GDP estimates of 3.3% for the third quarter.
The DOSM said its quarterly GDP projection was supported by the services sector which continued to steer the overall performance during the quarter, underpinned by the wholesale and retail trade, transportation and storage, and business services sub-sectors.
Pressure on IPI to Ease by Early 2024
Economists also expect IPI to improve, with some believing that the recovery will start as early as October while others opine that there will be an uptick in industrial production at the beginning of 2024.
“We expect the manufacturing downturn to ease from October onwards as the high base effect dissipates,” said Kenanga Research, adding that it maintained its manufacturing index growth forecast at 1% for 2023, which is much lower than the 8.2% expansion recorded in 2022.
Meanwhile, Public Investment Bank said it expected a “persisting deceleration in IPI growth” during the fourth quarter, largely due to lower global demand. “Nevertheless, we hold the expectation that the industrial sector is poised for a resurgence in 2024,” it said in a note on Wednesday.
The research house said it projects a 6.3% contraction in gross exports due to subdued external demand from key trading partners, noting that Budget 2024 indicated that exports of manufactured goods is expected to decline by 5.3%, due to a substantial 10.4% decrease in non-electrical and electronics (E&E) products, which outweigh the marginal increase in E&E product exports.
“Nonetheless, in the short term, Malaysia's manufacturing output is poised to closely track the trajectory of global semiconductor sales, which registered a negative y-o-y growth rate of 4.5% in September. This downturn aligns with the World Semiconductor Trade Statistics (WSTS) projections, foreseeing a more significant double-digit decline of 10.3% in the global semiconductor market for 2023, following a modest growth of 3.3% in 2022.
“Nevertheless, it is noteworthy that the Semiconductor Industry Association has observed a consistent month-on-month upswing in global semiconductor sales for the seventh consecutive month in September. This trend underscores the robust momentum that the chip market has sustained throughout the mid-year period.
"A robust recovery in the global semiconductor sales is anticipated for 2024, with an estimated growth rate of 11.8%, indicating a potential turning point for both Malaysia's manufacturing sector and the global semiconductor industry. The Ministry of Finance also foresees a 5.1% expansion in gross exports in 2024,” it said.
While the World Trade Organization expected trade to grow by 3.3% in 2024, in tandem with consistent GDP growth rate of 2.5%, it flagged concerns over signs of supply chain fragmentation becoming increasingly evident.
Source: The Edge Markets