Malaysia’s Q2’23 economic growth: faster q-o-q expansion, yet challenges ahead

MALAYSIA – Official data published by Malaysia’s central bank, Bank Negara Malaysia (BNM), on 18 Aug show the Malaysian economy expanding by a seasonally-adjusted 1.5% quarter-on-quarter (q-o-q) in the second quarter of 2023 (Q1’23), faster than the 0.9% increase in the first quarter of 2023 (Q1’23).

However, the picture is by no means upbeat, according to BMI, Fitch Solutions’ unit.

“In year-on-year (y-o-y) terms, the economy expanded by 2.9% y-o-y in Q2’23, falling below consensus expectations of 3.3% and our forecast of 4.0%.

“The latest figures correspond to a sharp slowdown from 5.6% in Q1’23,” it said in a statement today.

Malaysia – Quarterly Real GDP Growth, % chg y-o-y

The weaker-than-expected reading for 2Q leaves its prevailing 2023 growth forecast of 4.2% appearing too upbeat. To achieve that, the economy must grow by an average of 4.1% in the second half of 2023 (H2’23).

“However, we think that this might prove challenging to attain against the backdrop of weak external demand and elevated interest rates.

“Our forecast for the global economy to slow from 3.1% in 2022 to 2.4% in 2023 suggests limited room for Malaysia’s exports to recover in a material way in H2’23.

“We expect the weakness in Malaysia’s exports to have extended to the third quarter of 2023 (Q3’23) amid softer prices and demand for electronics and energy exports,” it said.

The research arm added another headwind stems from El Nino, which since June has led to adverse weather conditions and weighed on commodity production.

“Meanwhile, we expect high interest rates to impede domestic activity. We think that BNM is comfortable leaving its overnight policy rate at 3% for the rest of the year, suggesting that restrictive monetary conditions will persist for some time and that the current strength in consumption and investment will wane off gradually.

“We will take all of these into account when we firm up our forecast in a forthcoming article,” it said.