Global challenges to weaken growth

Shan Saeed said the global economy is facing numerous headwinds, like equity market meltdown and “bazooka” in the debt market.

PETALING JAYA: Although economic experts are forecasting the gross domestic product (GDP) to grow by a decent 4% to 5.5% this year, they say global headwinds could potentially suppress corporate Malaysia’s economy.

Domestic demand would continue to hold the fort and be the main driver of the nation’s economy. However, the global economic slowdown anticipated this year could affect local private consumption growth.


Most economists expect the local economy to grow by 6.5% to 7% this year. Based on official estimates, the domestic economy is anticipated to grow by 4% to 5% in 2023.

The risk of the Ukraine-Russia conflict worsening and causing further global supply chain disruptions, softer export performance and inflationary pressures due to global commodity or food prices remain some of the notable headwinds which could impact the domestic GDP growth in 2023.

The International Monetary Fund cautioned that it expects more than a third of the global economy to contract this year.

Meanwhile, the World Bank projects the global economy to grow by 1.7% in 2023 and 2.7% in 2024.

The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95% of advanced economies and nearly 70% for emerging market and developing economies, it said.

RAM Rating Services Bhd senior economist and head of economic research Woon Khai Jhek, who expects the economy to expand by 4% to 5% in 2023, from about 8.2% last year, said he does not expect the country to fall into a recession.

According to him, Malaysia’s broad and diversified economic base should also help to cushion the intensified headwinds to growth in 2023.

“Nonetheless, the country will unavoidably have to deal with the negative ripple effects from the gloomier external environment and, in turn, the dampening effect it has on its overall economic performance.

“The decline in the GDP growth rate this year mainly reflects the slowdown in global growth, tighter global and domestic monetary policy conditions, and continued price pressures.

“Besides, the receding low-base effects which propped up 2022’s growth will also contribute to a lower growth figure in 2023 compared to last year,” Woon told StarBiz.

All said, the economy is still expected to stay on the path of recovery and continue to chart positive growth, Woon added.

Woon Khai JhekWoon Khai Jhek

Domestic demand is expected to remain in the driver’s seat this year as businesses and households climb fully out of the shadows of the Covid-19 pandemic, he said.

This would be supported by the continued recovery in the labour market where RAM envisions the unemployment rate to return to the long-term level of around 3.3% by end-2023 (November 2022: 3.6%). Additionally, the continued improvement in household income and support from existing policy measures should also help to keep the domestic consumption engine running.

MARC Ratings Bhd senior economist Quah Boon Huat, who projects GDP growth in 2023 to moderate to 4.2%, said he foresees private consumption growth momentum slowing this year to 5.1% against 11.1% in 2022. This is despite the expected gradual improvements in the labour market and, consequently nominal household disposable incomes.

“The high cost of living is a concern, and understandably so, given not only the slap-in-the-face impact of imminent hunger on vulnerable households but also our current continued dependence on private consumption as a growth engine,” Quah said.

He expects downward pressure on private investment growth momentum this year at 2.3% compared with 5.7% this year.

Meanwhile, OCBC Bank chief economist Selena Ling said domestic consumption may be slowing down, as the post-Covid-19 rebound has been in part financed by Employees Provident Fund (EPF) withdrawals that may not be sustainable. She expects GDP growth to come in at 4.6% this year.

“The upside surprises thus far in GDP prints in 2022 suggest that we have been too bearish, compelling us to upgrade our 2022 growth outlook from 5.7% to 6.9%, she said.

Going forward, however, she expects the consumption support might not be as robust due to the relatively high household debt level and depletion of EPF statutory retirement funds.

Commenting on the macro scenario, Juwai IQI global chief economist Shan Saeed said the global economy is facing numerous headwinds, like equity market meltdown and “bazooka” in the debt market. Inflation remains elevated in advanced economies, but relatively low in Asia and emerging markets.

“About 60% of the global economy is in stagflation. 25% of the global economy will have negative GDP growth, especially Europe and the UK, while 10% is facing sovereign default risk like the case in Sri Lanka,” he said, noting that the UK, Europe and Japan are already in a deep recession.

That said, Shan does not expect Malaysia or the Asean economies to fall into recession this year and in 2024 as the overall economic outlook for the region looks promising despite global economic instability, fragility and market volatility.

He expects Malaysia’s GDP growth to hover 4.5% and 5.5% this year. This is premised on strong domestic demand, investment inflows, higher commodity prices, solid trade and infrastructure investment.

Malaysia University of Science and Technology economics professor Geoffrey Williams said with major advanced economies heading for a recession, the growth drivers in Malaysia would be the domestic economy and regional trade.

“This is why it is important to provide a stable domestic economy with a pause in interest rates and to promote regional trade, especially with Asean and China.

“So the recent visit by the Malaysian Prime Minister to Indonesia is very timely. Looking to India is also important and leveraging on the Islamic and halal markets are also key strategic areas for Malaysia,” Williams said.

On another note, he said the government should not reimpose restrictions on China’s tourists due to Covid-19.

“Financial instability globally and the possibility of a financial crisis remain something that must be monitored, while the risk of cybersecurity, data attacks and cyber terrorism are also real,” Williams said.

On Malaysia’s trade for 2023 RAM’s Woon expects the export momentum to weaken considerably, weighed down by the global economic slowdown and moderation in industrial activity. This is anticipated to directly dull demand for consumer electronics and in turn, Malaysia’s export of electrical and electronic (E&E) goods. E&E constitutes close to 40% of Malaysia’s gross exports.

“Evidence of an impending deceleration for the sector can already be seen in the downtrend of new orders in South Korea and Taiwan. Both countries are typically seen as a leading indicator for the global E&E value chain,” he said.

Meanwhile, the Malaysia manufacturing purchasing managers’ index (PMI), a measure of the prevailing direction of economic trends in manufacturing, saw its fourth consecutive month of decline in December 2022. The index edged down to 47.8 in December of 2022 from 47.9 in November. A reading above 50 signals expansion while below 50 means contraction.

On the outlook of the ringgit against the US dollar in 2023, Juwai’s Shan said he anticipates the local currency to trade at between RM4.10 and RM4.37 to the US dollar owing to the structural stability in place.

“The ringgit has demonstrated structural stability and appreciated against the greenback from RM4.78 in Oct 2022 to 4.32 on Jan19, 2023.

“Malaysia continues to have macroeconomic stability in the equation for the year 2023,” he said.

Meanwhile, Williams expects the ringgit to trade at between RM4.20-RM4.30 to the greenback in 2023.

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gross domestic product , GDP , global


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