With the rising recession risk in several major economies, Malaysia faces an uphill battle to maintain its growth momentum and consumer sentiment. – Filepic
The rising recession risk in several major economies, especially the United States, has clouded the global macroeconomic outlook for 2023.
As for Malaysia, a small and trade-reliant country, it would be an uphill battle to maintain its growth momentum and consumer sentiment, amid the impact from the crisis.
Even if the country manages to avoid a contraction in gross domestic product (GDP) next year, it is unlikely to escape an economic slowdown.
According to official projections, Malaysia's economy is expected to grow at a slower rate of 4% to 5% in 2023 compared to the anticipated 6.5% to 7% growth in 2022.
MIDF Research also foresees a moderation in growth, primarily due to the deceleration in external trade performances.
“However, we are optimistic that the domestic demand will provide support to the economy fuelled by continuous upbeat consumer spending, moderation in price pressures, further improvement in tourism-related activities and possible revival of infrastructure projects,” it said in a note earlier in December 2022.
Stepping into 2023, the domestic economy will continue to face other risks on the external front.
These include a sudden drastic change to the unsettling situation in Ukraine and uncertainty surrounding the real situation of China's economy.
Corporate Malaysia, particularly the listed companies on Bursa Malaysia, could find it challenging in 2023 to adjust to the new policy and political landscape, rising costs and tighter monetary policy.
Economists predict Bank Negara to raise interest rates further in 2023, as it continues to tame rising core inflation and to play catch up with the rates determined by the United States’ federal Reserve.
Between May to November 2022, the central bank had raised the overnight policy rate (OPR) by 100 basis points (bps) cumulatively to 2.75% from the record-low rate of 1.75%.
The market expects Bank Negara to hike the OPR by another 50 bps to 3.25%, bringing it higher than the pre-pandemic level of 3%.
This would mean that businesses and households will have to brace for increased borrowing costs in 2023.
Commenting on how the market may react to the challenges in 2023, CGS-CIMB Research said most of the pessimism is likely to be priced in by the first half of 2023 (1H23).
The research house anticipates the equities market to perform better in the second half.
Amid the challenges, CGS-CIMB Research forecasts a stronger FBM KLCI earnings growth of 12.8% in 2023, as compared to a projected contraction of 2.9% in 2022.
“We offer five investment trading themes for 2023, namely, beneficiaries of China’s reopening; beneficiaries of rate hikes; alpha picks; environmental, social and governance picks; and high dividend yielders.
“Potential bright spots are the return of foreign funds, merger and acquisition activities or synergies, China’s reopening, a stable government and clarity on government policies,” it said.
With 2023 seems to be a mixed year, businesses and households will also have to deal with continued persistent inflation.
Earlier in November 2022, Bank Negara governor Tan Sri Nor Shamsiah Mohd Yunus said Malaysia’s headline and core inflation in 2023 are expected to remain elevated, despite the continued easing of price pressures.
“Headline inflation is expected to range between 2.8% and 3.3% in 2023,” according to Nor Shamsiah.
On the labour force front, Malaysia’s jobless rate is expected to descend further this year, supported by still upbeat momentum in the domestic economy and modest expansion in the external sector.
MIDF Research anticipates the unemployment rate to decline further to 3.5%, slightly higher than the pre-pandemic level of 3.3%.
“Steady expansion in primary sectors as well as construction and services will prop up more employment opportunities in 2023,” according to the research house.
