• BNM projects 2023 GDP growth to be between 4.0% and 5.0%

• Domestic demand remains the anchor of growth

• Private consumption is projected to continue growing, albeit at a more  moderate pace

• Public investment to expand by 7%, public consumption growth to slow

• Most economic sectors to expand more moderately

• Export growth to slow to 1.5% in 2023

• Imports are also likely to moderate

• Current account to register surplus of 2.5% to 3.5% of GDP in 2023

• Both the headline and core inflation to remain elevated at 2.8% to 3.8% in 2023

• Unemployment rate is expected to improve to 3.5%

• Domestic monetary and financial conditions to remain supportive of financial  intermediation activities

• Economy to expand in 2023, albeit at a more moderate pace

Bank Negara Malaysia (BNM) expects the Malaysian economy to ease to between  4% to 5% this year, as slowing global growth is anticipated to weigh on exports while concern about elevated costs of living and input costs are expected to impact  spending by households and businesses. BNM’s GDP growth projection is within the  government’s official forecast of 4.5% growth in the country’s GDP for the year. In  2022, Malaysia’s economy achieved the highest growth rate over two decades,  expanding by 8.7%.

BNM said that the economy will continue to face challenges, particularly on the  external front. Slowing global growth is expected to weigh on Malaysia’s exports.  Domestically, concerns remain on the elevated cost of living and input costs, and  its impact on spending by households and businesses. The central bank said higher-than-expected inflation would lower the purchasing power of households, while a  steep rise in input costs could affect firms’ profits. Nevertheless, better-than-expected labour market conditions, stronger pick-up in tourism activities, as well  as the implementation of projects — including from the recently re-tabled Budget  2023 — may lift domestic growth outlook

Domestic demand continues to be the main driver of growth. As the economy normalises  further, domestic demand is expected to be resilient and will remain the anchor of growth for the Malaysian economy. Further improvements in labour market conditions will sustain  household spending. Meanwhile, investment activity would be driven by the realisation of  multi-year projects across key economic sectors.

Bank Negara said private consumption is projected to continue growing, albeit at a more  moderate pace (2023f: 6.1%, 2022: 11.3%, long-term average 2011-2019: 7.1%). While  households are expected to further adjust spending in response to elevated cost of living,  consumption spending will be underpinned by continued improvements in labour market  conditions. Nevertheless, spending by lower-income households may continue to be  impacted by the elevated cost of living. Meanwhile, private investment is projected to  expand by 5.8% (2022: 7.2%), supported by the implementation of multi-year projects  across all economic sectors. Further progress in key infrastructure projects such as the  Malaysia Digital Economy Blueprint (MyDIGITAL) and continued drive for greater  automation and digitalisation would also support investment activity. Furthermore,  ongoing efforts by the government, particularly through the various initiatives under the  new investment policy to attract and facilitate the implementation of investment projects,  would provide additional support to investment activity.

Public investment is expected to expand by 7.0% in 2023, compared with 5.3% in 2022,  attributable to higher capital spending by both the general government and public  corporations amid the continued progress of large-scale infrastructure projects, such as the  East Coast Rail Link (ECRL), the Light Rail Transit Line 3 (LRT3), and the Pan Borneo Highway. Public consumption, on the other hand, is expected to grow at a slower pace of 1.3% this  year, compared with 3.9% last year. This moderation is due mainly to contraction in  supplies and services spending due to the lapse in Covid-related expenditure. Emoluments  spending, however, is expected to be higher, driven by Special Additional Annual Salary  Increment of RM100 for civil servants and the absorption of contract officers to permanent  positions — particularly in the health and education services.

Source: BIMB Securities Research - 30 Mar 2023