KUALA LUMPUR – Malaysia’s economic growth is expected to moderate to 3.9 per cent in 2023 from an earlier projection of 4.3 per cent in April this year amid a substantial deceleration of external demand, according to the World Bank today.
However, it said, domestic demand would continue to support Malaysia's economic resilience this year while a limited fiscal space remained a key challenge for the economy.
“Growth for this year is actually 0.4 percentage point lower than our previous forecast and the reason for this comes to no surprise -- lower global growth this year, weak external demand.
“We can see that for Malaysia’s exports numbers, which contracted by 3.3 per cent (in the first quarter) and 9.4 per cent (in the second quarter) of this year,” World Bank lead economist Apurva Sanghi was quoted as saying by Bernama during the release of the October 2023 East Asia and Pacific (EAP) Economic Update and part one of the September 2023 Malaysia Economic Monitor (MEM) here today.
According to a summary of the bank's Malaysia Macro Poverty Outlook, 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 percent in 2023. This will be sustained by improvements in labor market conditions and the government's ongoing household income support initiatives, it said.
Gross exports are projected to contract by 5.8 percent, contrasting with a 14.5 percent 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 3.0 percent in 2023.
"This primarily reflects the relaxation of global supply constraints and the stabilisation of commodity prices," it said.
According to the outlook, the economy is also expected to face significant external risks.
Deeper global growth shocks could potentially result in a more significant slowdown than anticipated, it said.
On the domestic front, key sources of downside risk are linked to uncertainties surrounding domestic inflation, it added.
Growth in region
As for growth in developing East Asia and Pacific, the outlook is projected at 5 percent in 2023 but is pected to ease in the second half of 2023 . It is forecast to be 4.5 percent next year.
According to the EAP update, regional growth this year is higher than average growth projected for all other emerging market and developing economies but lower than previously projected.
Growth in China in 2023 is projected to be 5.1 percent and in the region, excluding China, to be 4.6 percent. Growth among Pacific Island Countries is expected to be 5.2 percent, said a press statement issued by the World Bank in conjunction with the report's release.
"In 2024, improving external conditions will help growth in the rest of the region but persistent domestic difficulties in China – the fading of the bounce back from the re-opening of the economy, elevated debt, and weakness in the property sector, structural factors such as aging – will weigh on growth in China, slowing it to 4.4 percent in 2024," said the World Bank.
"Growth in the rest of the region is expected to edge up to 4.7 percent in 2024, as recovery in global growth and easing of financial conditions offsets the impact of slowing growth in China and trade policy measures in other countries."
An intensification of geopolitical tensions, and the possibility of natural disasters, including extreme weather events, are additional downside risks to the region’s economic outlook, it added.
“The East Asia and Pacific region remains one of the fastest growing and most dynamic regions in the world, even if growth is moderating” said World Bank East Asia and Pacific Vice-President Manuela V. Ferro.
“Over the medium term, sustaining high growth will require reforms to maintain industrial competitiveness, diversify trading partners, and unleash the productivity-enhancing and job-creating potential of the services sector.” – The Vibes, October 2, 2023
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