Malaysia's economy seen moderating to 4 pct in 2023 on external headwinds

KUALA LUMPUR: Citi Research expects Malaysia’s economic growth to moderate to 4 per cent in 2023 due to “base effects and external headwinds.”

The research house said in a statement that China’s reopening of borders could provide a substantial cushion against the headwinds from a possible recession in the European Union (EU) and the United States.

“We raised our 2022 gross domestic product (GDP) forecast to 8.7%, substantially above the finance ministry’s forecast of 6.5- 7%, and see a moderation to 4% in 2023,” said Citi head of Asean Economics Kit Wei Zheng.

Citi Research said labour demand is expected to remain resilient this year with unemployment rates falling to pre-Covid levels, although full implementation of the 25 per cent minimum wage hike from the second half of 2023 could add to wage pressures, with unit labour costs further lifted by the cyclical slowdown in productivity.

On Bank Negara Malaysia’s (BNM)’s decision yesterday to maintain the overnight policy rate (OPR) at 2.75 per cent, Citi Research said it sees this as an intermittent pause, not just to allow for more time to assess the impact of earlier hikes, but for changes to the balance of risks from policy adjustments in the budget.

“With core inflation still seen elevated (despite moderating) and risks to the upside, we expect at least another 25bps hike in March and another 25bps in May, with further hikes in the second half 2023 a possibility,” it said.

On the global front, Citi Research said it continues to see “rolling country level recessions”, with high inflation and tight monetary policy likely to plague the outlook as geopolitical challenges persist.

The pace of global growth this year is likely to decline to just over 2 per cent, nearly a percentage point weaker than last year’s “near-trend performance,” it added.

“In recent weeks, we have seen a dynamic transition in the global economy.

“China has abandoned its zero-Covid strategy, the euro area has enjoyed warm and windy weather, which has softened the blow from the gas shock, and recent US data has shown lower inflation but still-solid economic activity. Despite the recent good news, we judge that the global economy still has a tough year ahead,” it concluded.

- Bernama

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