We revise upwards our 4Q22 GDP growth estimate to +6.8% YoY (pre lim estimate: +5.5% YoY; consensus: +6.8% YoY; 3Q22: +14.2% YoY) following the release of latest indicators. Nevertheless, the estimate still points to a slowdown from the preceding quarter. Growth is expected to be weighed down by moderation in most sectors, including manufacturing and services. On the demand side, growth is anticipated to be buoyed by private consumption, albeit at a slower pace. In line with the revision, we see upside bias to our 2022 GDP forecast of +8.2% YoY, pending the release of actual 4Q22 print.

We revise upwards our 4Q22 GDP growth estimate to +6.8% YoY (prelim estimate: +5.5% YoY; consensus: +6.8% YoY; 3Q22: +14.2% YoY) following the release of latest indicators. In line with the revision, we see upside bias to our 2022 GDP forecast of +8.2% YoY pending the release of actual 4Q22 GPD print on 10 Feb 2023.  

4Q22 GDP: Growth is expected to weaken to +6.8% YoY (3Q22: +14.2% YoY) weighed down by moderation in most sectors, particularly in manufacturing and services. On the demand side, growth is anticipated to be buoyed by private consumption, albeit at a slower pace.  

We expect a moderation in the manufacturing sector, reflected by the slowdown in manufacturing IPI in 4Q22 (+4.0% YoY; 3Q22: +13.4% YoY), in line with the global manufacturing downturn and weak demand. Both export-oriented (+4.4% YoY; 3Q22: +11.4% YoY) and domestic-oriented (+3.2% YoY; 3Q22: +19.2% YoY) production trended lower during the quarter. Similarly, growth in the services sector is also expected to slow, consistent with the weaker volume index of services showing (+11.7% YoY; 3Q22: +23.1% YoY). Growth was dragged by moderation across the board, particularly in wholesale & retail trade (+9.9% YoY; 3Q22: +25.9% YoY), food & beverages (+17.2% YoY; 3Q22: +36.4% YoY), as well as accommodation (+81.0% YoY; 3Q22: +344.4% YoY). The mining sector is also anticipated to slow pace, as production moderated (mining IPI 4Q22: +6.2% YoY; 3Q22: +8.6% YoY) on account of softer production of natural gas (+7.5% YoY; 3Q22: +13.8% YoY), despite the pickup in crude petroleum (+4.4% YoY; 3Q22: +1.8% YoY). We also expect slower construction growth, following a moderation in the value of construction work done in 4Q22 (+15.7% YoY; 3Q22: +23.2% YoY), though still robust. Meanwhile, the agriculture sector is anticipated to gain slight momentum, in large part due to the stronger palm oil production during the quarter (+6.5% YoY; 3Q22: +2.6% YoY) following improved labour situation.  

On the expenditure front, Malaysia’s overall 4Q22 growth is expected to be supported by private consumption, however at a slower rate, following higher cost of living. This is in tandem with the softer growth recorded for retail sales (+19.3% YoY; 3Q22: +29.6% YoY), following the slower wage growth in both the services (+5.9% YoY; 3Q22: +8.7% YoY) and manufacturing (+5.0% YoY; 3Q22: +6.7% YoY) sectors. Malaysia’s net export performance is also expected to give support to overall 4Q22 GDP, albeit at a more modest pace, on account of the weaker international trade momentum.

2023 GDP: Outlook for the global economy has unexpectedly brightened in recent weeks due to the resilience of several major economies, the easing of energy costs, as well as China’s faster-than-expected reopening. Nevertheless, risks to the outlook remains tilted to the downside on account of persistent inflationary pressures, possible escalation of geopolitical tensions and tighter financial conditions. In view of the slower global outlook, more moderate domestic demand and absence of base effect, we maintain our expectation for GDP to moderate to +4.0% YoY in 2023.

Source: Hong Leong Investment Bank Research - 9 Feb 2023