KUALA LUMPUR (Jan 22): The Department of Statistics Malaysia (DOSM) estimated a 3.4% year-on-year (y-o-y) increase in gross domestic product (GDP) to RM411.35 billion in the final quarter of 2023 (4Q2023). This came below Bloomberg consensus’ forecast of 4.1%.

The 3.4% y-o-y growth is also below the expectations of TA Securities at 4.6%, Maybank Research at 3.9%, CGS-CIMB at 4.3%, and UOB Research at 4%.

Analysts attributed the weaker than expected 4Q2023 GDP performance to sluggish global demand.

According to a note on Monday, CGS-CIMB stated the manufacturing sector recorded weak growth, which mainly comes from external sectors such as electrical and electronic products (E&E), petroleum and chemicals, and wood products.

The nominal export growth has recorded a 10% y-o-y decline to RM118.45 billion in December 2023, weaker than the 6.1% decline recorded in November 2023 due to lower exports of manufactured goods, especially the E&E segment, said the research house.

Adding to this, the DOSM only forecasts a modest growth of 0.1% for the manufacturing sector in the quarter, while TA Securities expects 0.7% y-o-y growth.

Meanwhile, imports went up 2.9% y-o-y to RM 106.66 billion in December 2023 due to higher demand for intermediate goods.

As a result, Malaysia registered a lower trade surplus of RM11.8 billion in December 2023.

Year-on year, the exports slumped 8% and imports fell 6.4%, while the trade surplus declined 16.4% to RM214.1 billion.

Commenting on the Red Sea crisis, CGS-CIMB opine that this is unlikely to be a major setback to Malaysia’s exports as the attacks have been selective and ships can still pass through.

“Regardless, we think this crisis is short-term in nature, and any shipment backlogs are likely to be offset by more shipments thereafter,” it added.

On the other side, RHB Research has revised its 4Q2023 GDP growth forecast to 3.4% y-o-y versus its previous estimation of 4.6% y-o-y.

The research house expected the 4Q2023 GDP growth to be sustained at a similar rate of 3.4% y-o-y in the final release (scheduled on Feb 16), as the year-end seasonality effect would also drag on the December data, it said.

Looking at 2024, RHB Research projected 2024 GDP growth at 4.6%, as nominal export growth is expected to rebound by 4.3% y-o-y in 2024 versus a decline of 8% in 2023, spurred by resilient global and regional economic growth prospects coupled with re-acceleration in the global technology cycle, it said.

CGS-CIMB holds the same view by maintaining its GDP growth projection for 2024 at 4.6% y-o-y , stating consumption may continue to anchor growth.

“While there is downside risk to consumption from the rollout of new taxes and subsidy adjustments, we think it will be gradual. In addition, the planned monthly cash handouts could offset new taxes adequately,” it added.

A boost from tourism, especially with the visa-free programme for tourists from India and China; a robust labour market with a falling unemployment rate, a high labour participation rate and ample wage growth; as well as the accommodative overnight policy rate (OPR) are the factors contributing to its projection, it said.

Meanwhile, Hong Leong Investment Bank Research noted downside risks for Malaysia, which could emanate from the escalation of geopolitical risks in the Middle East, Western area or even in the South China Sea.

“In addition, a more entrenched inflationary environment would also have negative consequences for global monetary conditions, with central banks forced to maintain a more restrictive monetary policy environment.

“These downside risks could lead to a more volatile global financial environment and weaker economic growth. Notwithstanding these downside risks, we anticipate Malaysian GDP to improve in 2024, and maintain our expectations for the monetary policy committee to maintain the overnight policy rate at 3.0% in 2024,” it added.