CGS-CIMB Research projects 2Q23 GDP to expand by 3.3% year-on-year from a 5.6% in 1Q23.
PETALING JAYA: The country’s gross domestic product (GDP) in the second quarter of 2023 (2Q23) is expected to moderate due to softening demand, both externally and domestically, with more pronounced weakness seen across the manufacturing and agriculture sectors.
CGS-CIMB Research projects 2Q23 GDP to expand by 3.3% year-on-year (y-o-y) from a 5.6% y-o-y growth in 1Q23.
“Signs of weakness became more pronounced in 2Q23, with the latest release of production and agriculture data pointing lower, especially for the month of June, dragging down the quarter’s average,” the research house said in a report yesterday.
Nevertheless, the research house noted that the domestic-oriented sectors have remained steady, underpinned by the services index recording better quarter-on-quarter (q-o-q) performances for two consecutive quarters.
The aforementioned weaknesses are mainly in the external-oriented segments, it said.
“In our view, despite the reduction in disposable income owing to the central bank’s tighter policy rate, the government’s ongoing efforts in price intervention and maintaining subsidies for key items have helped to cushion the cost burdens faced by the average Malaysian consumer.
“The risk of price pressures is also somewhat cushioned by a healthy employment rate, as well as further government cash handouts,” the research house said.
In June, the manufacturing index saw a 1.6% decline y-o-y from a 5.1% increase y-o-y in May.
Dragged by export-oriented industries such as refined petroleum products and computer, electronics and optical products, the sector registered a marginal growth of 0.1% y-o-y.
“The performance of the agriculture sector likely deteriorated further in 2Q23. Crude palm oil production, which accounts for a third of agriculture output, declined by 6.9% y-o-y in 2Q23 (versus an increase of 3.2% in 1Q23), possibly due to workers’ holiday breaks during the Eid festivities.
“However, quarter-on-quarter (q-o-q) growth showed an improvement of 6.1% on the back of the easing labour shortage,” CGS-CIMB Research said.
The research house also expects the moderating GDP performance in 2Q23 to persist further into 3Q23 due to a high base effect.
It added that the underlying economic momentum will likely be much weaker in 3Q23, even if base effects are excluded, due to lower external and domestic demand.
“We expect the overnight policy rate to be maintained at 3% at the end of 2023, owing to easing inflationary pressures, as well as the likelihood of a global economic slowdown becoming more pronounced than previously expected, trickling into the export numbers,” it said.
Meanwhile, Hong Leong Investment Bank (HLIB) Research, which also estimated slower 2Q23 GDP growth, said private consumption, though at a slower pace, is expected to remain the key driver of growth.
The research house projects 2Q23 GDP to expand by 2.9% y-o-y, lower than the consensus median forecast of 3.6% y-o-y.
“On the expenditure front, Malaysia’s private consumption is expected to weaken but remain the key driver of growth, underpinned by the healthy labour market situation and continued wage growth in both the services and manufacturing sectors.
“Nevertheless, consumption activity is still expected to slow as consumers tighten their discretionary spending in response to the high cost of living and absence of festival seasons.
“This is reflected by the softer retail sales posting for the quarter,” HLIB Research said.
For the rest of the year, the research house said the country’s pace of economic expansion is likely to continue to moderate with the absence of base effect and pent-up demand.
Meanwhile, TA Research said the services sector’s growth in 2Q23 is poised to fall short of its initial projection of 5.2% y-o-y.
The research house noted that the services sector’s substantial contribution amounted to an approximate 58.2% share of the country’s overall GDP last year.
“Presently, our projections stand at 4.7% y-o-y, exhibiting a discernible decline from the preceding 7.3% y-o-y growth recorded in 1Q23,” it said in a report yesterday.
TA Research expects 2Q23 real GDP to expand at a moderate pace of 2.8% y-o-y from its initial expectations of 3.2% y-o-y.
The research house’s full-year GDP growth rate target for 2023 is 4.2%.
