PETALING JAYA: Malaysia is to experience robust gross domestic product (GDP) growth in the third quarter of this year (3Q22), partly owing to the low base of 3Q21 where GDP contracted by 4.5% year-on-year (y-o-y).
Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said a GDP growth of between 8% and 9% for 3Q22 is estimated, similar to the GDP growth recorded in the previous quarter.
“For 3Q22, buying sentiment is quite positive up till now,” Lee said during a media briefing on Malaysia’s quarterly economy tracker to back his estimates.
In 2Q22, Malaysia recorded an extraordinary GDP growth of 8.9% y-o-y, beating market expectations and bringing GDP growth in the first half of the year (1H22) to 6.9% y-o-y.
Lee, however, expects GDP growth to ease to the range of 4% to 5% y-o-y going into 4Q22 on account of slowing global growth prospects.
With that, SERC has revised its full-year GDP growth projection for Malaysia to 6.5% from an initial 5.2%.
Earlier this month, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz had conveyed that the country’s growth may exceed the official estimate of between 5.3% and 6.3% for this year, as it saw better-than-expected growth in 2Q22 and expects a strong GDP growth for 3Q22.
“For 2023, the GDP is forecast to grow at a more moderate pace of 4.1% owing to weakening global growth, the normalisation of domestic demand and also the high-base effect,” Lee said.,
Elaborating further, Lee said domestic demand will be impacted by higher inflation and cost of living, as well as interest rates, while private investment remains cautious due to increased costs, shortage of workers, external uncertainties and domestic political uncertainty.
On the global economic outlook, Lee sees an increasing risk of a slowdown next year.
He pointed out that the International Monetary Fund said a global recession in 2023 cannot be ruled out and the World Bank said global rate hikes could trigger a recession in 2023.
“In the United States, over two-thirds of economists believe a recession is likely to hit in 2023,” he added.
Commenting on inflation, Lee believes it is too early to say if price pressures have peaked owing to the mixed inflation data by major advanced economies.
“While headline inflation in the United States indicated a reversal of the surge, core inflation accelerated. In Europe, inflation surged higher,” he said.
However, Lee agrees with Bank Negara’s projection of inflation peaking in 3Q22.
As for interest rates, Lee expects them to remain at 2.5% this year, following a cumulative 75-basis-point (bps) hike throughout the year so far.
But he expects the central bank to raise the interest rate by another 50 bps in 1H23 to 3%.