OCBC sees no change in BNM’s monetary stance despite slower 2Q growth

KUALA LUMPUR: OCBC Bank sees no change in Bank Negara Malaysia’s (BNM) monetary policy stance for the rest of 2023 and into 2024 despite the lower-than-expected 2.9 per cent gross domestic product (GDP) growth recorded in the second quarter (2Q).

The bank’s senior Asean economist Lavanya Venkateswaran reckons that “a slowing GDP growth profile was always on the cards given the weak external backdrop.”

“And while the extent of the slowdown in 2Q may have surprised to the downside, we expect BNM to remain focused on containing inflationary pressures and keeping financial imbalances in check,” she said in the bank’s latest report on Malaysia.

OCBC Bank had projected Malaysia’s 2Q growth at 4.9 per cent, with the consensus estimate at 3.3 per cent, against 5.6 per cent growth in 1Q.

Lavanya said details on the demand side were mixed with the contribution of domestic final demand to headline GDP marginally lower at 4.2 percentage points (pp) in 2Q versus 4.3 pp in 1Q.

“The public sector, on account of higher consumption and investment spending, played a bigger role in supporting growth in 2Q. Specifically, the public sector contribution to growth increased to 0.7 pp in 2Q from minus 0.1 pp in 1Q.

“By contrast, private sector contribution narrowed to 3.4 pp in 2Q from 4.4 pp in 1Q as private consumption spending slowed to 4.3 per cent year-on-year (y-o-y) from 5.9 per cent previously,” she noted.

She added that the contraction in export growth also widened to minus 9.4 per cent y-o-y from minus 3.3 per cent in 1Q, while import growth weakened to minus 9.7 per cent y-o-y from minus 6.5 per cent previously.

“As a result, the net exports contribution turned negative (minus 0.1 pp) in 2Q from 2.1 pp in 1Q.

“The weakness was more obvious on the supply side. Growth in all major sectors slowed in 2Q from 1Q. These include the agriculture, manufacturing, construction, and services sectors,” she said.

OCBC Bank now sees full year 2023 growth at the low end of BNM’s 4.0-5.0 per cent forecast range, “reflecting the not-so-rosy first half (1H) outturn of 4.2 per cent.”

As such, the bank has slashed its 2023 GDP growth forecast for Malaysia to 4.0 per cent from 4.4 per cent previously, while maintaining the 2H growth forecast at 3.7 per cent, “reflecting a bigger drag from anaemic external demand conditions.”

“For 2024, we lower our GDP growth forecast to 4.2 per cent from 4.5 per cent previously as the drag from global growth is expected to persist. This nonetheless underscores an improvement in growth momentum relative to 2023,” she said. – BK