Economists said on Thursday that the Malaysian economy will slow down in 2023 because of tough conditions outside the country and slower domestic demand.
In a report, Maybank Investment Bank Research said that it expects Malaysia's full-year growth to slow down to 4% in 2023, down from 8% in 2022. This is mostly because domestic demand will have slowed down.
The research firm thinks that private consumption will grow more slowly next year as people spend the money they have been saving since the economy fully reopened. This will be made worse by the effects of high inflation and high interest rates on the cost of living and real disposable income.
It also predicts that the growth of public consumption will slow down, which is in line with the fact that the government will spend less on operating costs in Budget 2023.
It also said that because the world economy is expected to grow more slowly, exports and imports of goods and services will fall.
The growth of Malaysia's gross domestic product (GDP) is expected to slow to 4.2% by 2023, according to MIDF Research. This is mostly because of slower global demand, which will slow the performance of Malaysia's exports.
"We think that the global economy will slow down next year instead of going into a recession. The United States and the European Union will have less demand next year because interest rates will be higher and inflation will be higher, MIDF Research said in a report.
According to the research firm, Malaysia's real export growth will slow from 12.5 percent in 2022 to 2.8 percent in 2025. This is partly because services exports are expected to improve because tourism is expected to be stronger.
On the other hand, it thinks that Malaysia will continue to benefit from commodity exports, especially palm oil, petroleum, and liquefied natural gas (LNG), because the average prices of crude palm oil (CPO) and Brent crude oil are expected to stay high at $794 per tonne and $96 per barrel for next year.
MIDF Research is also optimistic that the Malaysian domestic economy will be boosted by consumers' spending, tourism, and infrastructure projects.
The Affin Hwang Investment Bank, on the other hand, said that the slowdown in global growth will hurt Malaysia's open economy. As a result, the bank recently cut its GDP estimates for 2023 from 4.7% to 3.7%.
Even though a slowdown in global growth will affect Malaysia, the research firm thinks a recession is unlikely because of the country's strong labor market and steady recovery in tourism-related industries.
It did say, though, that Malaysia might have to deal with a rise in the cost of living if the government doesn't make a firm commitment to improving the country's finances and addressing the concerns of sovereign rating agencies.
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