External weakness continues to affect Malaysia’s economy as Jul 2023 manufacturing industrial production dipped 0.2% and exports registered y-o-y contraction for five months consecutively. This has been largely anticipated given the aggressive monetary tightening globally to cool down inflation. Nevertheless, China’s economic recovery could accelerate after a raft of stimulus measures being introduced recently which could help improve our exports performance. The recent rebound in commodity prices due to increased imports from China also bodes well for our external trade. Meanwhile, the global technology downcycle may have bottomed in view of the fifth straight successive m-o-m increase in global semiconductor shipments, potentially lifting our E&E exports towards late-2023.
Amidst a relatively weak external environment, Malaysia’s economy continues to take comfort from its resilient domestic demand, underpinned by healthy household spending as wages and employment continue to increase. The record high labour participation rate of 70.1% in Jul 2023 is an added booster to further sustain our strength in private consumption (60% of Malaysia’s economy) despite the high base effects in 2022. Unemployment rate remains on a downward trajectory on a m-o-m basis, indicating a robust employment market. This comes at an opportune time for Malaysia to resolve its fair share of challenges such as subdued sentiment, low wages and high living cost which the Malaysian government remains committed to tackle.
The 12th Malaysia Plan Mid-Term Review has turned out to be the cornerstone of the government’s reform initiatives as fiscal sustainability and subsidies retargeting have been highlighted as among the 17 key focus areas. Details for broadening the revenue base and retargeting of subsidies such as electricity and petrol are expected to be included in the Budget 2024 to be tabled in Oct 2023. In addition, more incentives related to the implementation of the National Energy Transition Roadmap (NETR) and the New Industrial Master Plan (NIMP) 2030 are likely to be introduced as the government strives to enhance economic competitiveness, drive digitalisation and achieve net zero agenda. More importantly, Budget 2024 is expected to contain a development expenditure of >RM90bn (vs ~RM84bn in 2023 excluding 1MDB payment) while the budget deficit should inch below 4.5% (vs 5% in 2023).
Despite the external challenges, we remain cautiously optimistic of the growth prospects of Malaysia and expect a healthy 2023 GDP growth of 4.1%. Private consumption continues to be the key growth driver, underpinned by robust labour market and strong economic and social activities, especially the tourism-related activities. On the other hand, Malaysia’s diversified export base and deep integration into global supply chain will ensure our trade resilience. Key downside risks will be weaker-than-expected global growth outlook and volatile global financial conditions.