Moderate growth expected in 4Q23

KUALA LUMPUR: Continued softness in the upcoming gross domestic product (GDP) numbers for the fourth quarter of 2023 (4Q23) is to be expected, given the sluggish export sector and ongoing economic slowdown in China, say economists.

They have also revised their GDP expectations lower given such a situation, but are quick to note that continued positive numbers in the labour and private consumption will help to support the economy.

However, most economists expect the manufacturing sector to exhibit continued weakness in 4Q23.

Bank Negara is slated to release the country’s latest 4Q23 GDP figures by this Friday.

According to Sunway University Business School Professor Yeah Kim Leng, the flash estimates recently released by the Statistics Department showed the GDP is likely to have grown by 3.4%, noting that this is lower than expected as the full-year expectations will likely be above 4% to 5%.

“Now it has come down to the lower end of the expected range and it is partly because of the softness in the 4Q23 GDP attributed to the weaker exports count.

“Our external trade had contracted and exports of the full year as well. But encouragingly, domestic demand and private consumption remain resilient, and this will support stable domestic-driven growth in the last quarter which will help grow the full-year GDP at 3.8%,” Yeah told StarBiz.

“There may also be some possible upside revision to the 3.4% flash estimate, given that domestic demand was stronger than expected.

“Support from stronger domestic consumption can be due to the rise in employment and subsequently a reduction in unemployment,” he added.

Another positive upside support indicator points to the moderately strong lending and credit flows from banking statistics, which remain moderately strong.

“This is also a crucial factor that provides support to the economy for households and businesses,” Yeah noted.

Meanwhile AmBank Group Research said it concurs with the Statistics Department’s advance estimate that the GDP grew 3.4% in 4Q23 and 3.8% for the full 2023 year.

The department’s advance estimates of the country’s GDP is based on the output or production/sectoral approach.

AmBank Group Research said its expenditure forecast approach shows its model suggests that Malaysia’s 4Q23 GDP also grew by 3.4% year-on-year.

This is due to the solid and continuous expansion driven by higher labour productivity and healthier distributive trade sales, it said.

“However, private consumption share to GDP may have peaked at around 60%. On an annual basis, our model also suggests that government spending to GDP has been trending above 13% annually since the pandemic,” the research house said.

It also points out the declining share of investments to GDP, from 25.4% in 2016 to 21.4% in 2023.

It noted that that export growth remained weak in the forth quarter, while industrial production was affected by sluggish external demand among Malaysia’s major trading partners, such as China and the European Union.

Malaysia’s quarterly exports to China have been in the negative territory over the past five quarters, which is the longest on record.

The World Bank had at the end of last year forecast that China’s GDP growth will slow to 4.5% this year and to 4.3% in 2025.

China’s outlook is clouded by continued weakness in the real estate sector and persistently flagging global demand in the short term, the bank said.

The World Bank also noted of China’s structural constraints to growth including high debt levels, an ageing population and slower productivity growth than in the past.

Analysts said these point to the possibility of the slowdown in China being a longer term one as it involved structural issues, albeit this could change if global growth conditions and outlook improve markedly.

Realistically speaking, AmBank Group Research said it anticipates net exports will be the biggest drag on Malaysia’s growth in the fourth quarter, with a double-digit decline of -43.1% year-on-year (y-o-y).

“Merchandise trade balance is likely to have dropped by -45.9% y-o-y in the fourth quarter due to a slump in total exports to China and the European Union.

The falling ringgit provided little positive impact on Malaysia’s economy when external demand was weak,” the research house said.

It also noted of the S&P Global Manufacturing PMI which has been trending below the 50-point mark for 17 consecutive months since September 2022.

On the other hand, Hong Leong Investment Bank Researh (HLIB Research) expects a continued contraction in the manufacturing sector in the fourth quarter while there will likely be continued expansion across most other economic sectors.

It noted another quarter of manufacturing contraction is seen given the continued downtrend in the manufacturing Industrial Production Index of -0.2% y-o-y, which mirrored the downbeat situation on the global front with the global manufacturing Purchasing Managers Index in Dec 2023 at 49.0.

This is also reflected by the steeper drop in export-oriented manufacturing activity during the quarter of -2.8% y-o-y from -2.3% in the third quarter, it said.

However, it noted domestic-oriented activity may have gained growth momentum.

Of other key supports to the economy in the fourth quarter, HLIB Research said the healthy private consumption, stronger labour market may be checked by modest expectations for consumer spending on cost of living matters.