KUALA LUMPUR: The World Bank has adjusted Malaysia’s economic growth forecast for 2023, lowering it to 3.9% from the previous estimate of 4.3% while the projection for 2024 has been raised to 4.3% from the previous 4.2%.
World Bank Malaysia lead economist Apurva Sanghi (pix) said, “The reason for this (2023) should come as no surprise, we have lower global growth this year than last year. But it’s not just external factors that weigh down on Malaysia’s growth, it’s also domestic factors.”
Explaining further, he added, “First is simply base effects ... because growth was high last year, growth registers lower this year. Second, extreme weather events, hot weather affecting agricultural output earlier this year. That has an implication ... most rice production in Malaysia is concentrated in northern Malaysia. So extreme weather events can have a disproportionate impact on agriculture, rice, and food security. There are (also) dampening effects on spending growth from monetary policy normalisation, especially on interest rate sensitive sectors.”
Apurva told this to reporters at the release of the October 2023 East Asia and Pacific (EAP) Economic Update and part one of the September 2023 Malaysia Economic Monitor (MEM) today.
According to the EAP update, the main driver of growth is expected to be domestic private sector spending. Private consumption is forecasted to expand at a relatively robust rate of 5.2% in 2023. This will be sustained by improvements in labour market conditions and the government’s ongoing household income support initiatives.
“Gross exports are projected to contract by 5.8%, contrasting with a 14.5% growth in 2022 because of subdued global growth prospects and weakening international trade momentum. Headline consumer price inflation is projected to moderate, falling within the range of 2.5% and 3% in 2023. This primarily reflects the relaxation of global supply constraints and the stabilisation of commodity price,” said Apurva.
Meanwhile, the economist said that the higher projection for 2024 is based on better external prospects – a stronger global growth, higher oil prices, stronger domestic demand, domestically higher number of approved investments, tourism that is bouncing back, improvements in the labour market, and overall easing inflation.
“So indeed 2024 underscores an improvement in growth momentum relative to 2023. Again, keeping in mind that the benefits of growth have not trickled down fully, about half a million households still remain under the poverty line.
“Real estate and construction output levels are still below pre-pandemic levels. But next year should be better than this year,” he added.
He also highlighted that in the short term, the US-China trade war is benefiting Malaysia’s semiconductor industry.
“One bright spot in Malaysia has been the semiconductor industry. In fact, Malaysia semiconductors rival the combined total of other major Asean countries ... Philippines, Indonesia, Thailand, and Vietnam. And in particular, under semiconductors is IC, integrated circuits that recorded the most robust growth rate of about 30% in this time period (since 2009).
“But this can be a risk factor down the road if US sanctions disrupt China’s supply and consequently impact Malaysia’s ability to produce more downstream related semiconductor products,” he added.
