KUALA LUMPUR: Malaysia is expected to record a moderate growth of four per cent growth this year on the back of slower growth in private and public consumption.
The forecast made by Maybank Investment Bank (IB) was half of the company's estimated gross domestic product (GDP) for 2022 of eight per cent and at the lower end of Budget 2023's estimated GDP of between four to five per cent.
"This mainly reflects a moderation in domestic demand on the back of slower growth in private consumption as pent-up spending from the full economic reopening last year dissipates, compounded by the effects of high inflation and high-interest rates on the cost of living and real disposable income.
"There will also be some moderation in public consumption growth in line with the lower operating expenditure allocation in Budget 2023," said chief economist Suhaimi Ilias during the virtual 2023 market outlook.
The company estimated private and public consumption to be moderate to 6.1 per cent and 4.3 per cent, respectively, this year versus the estimated 11.4 per cent and 8.6 per cent for 2022.
He said the outlook for a global economic downturn would also result in slower growth for exports and imports of goods and services.
The ongoing economic downturn is mainly driven by stagnation or recession in major economies, whereby the firm estimated global GDP to be at 1.7 per cent this year.
"What is still holding the global economy in growth territory, albeit slowing considerably in 2023 after a stronger rebound in 2022, is the improved outlook of China's growth to four per cent this year from our estimate of 3.3 per cent.
"This would impact the unwinding of China's zero Covid-19 policy that will support global and ASEAN economies.
"Although it will not shield external headwinds, growth momentum is expected to be intact, albeit slowly," said Suhaimi.
Suhaimi added that high inflation and high-interest rates are poised to linger this year, with Bank Negara Malaysia expected to increase another 25 basis points in the Overnight Policy Rate (OPR) to three per cent this month before taking a break for the year.
He said this brings back OPR to the pre-Covid level, which is justified by the trend in inflation and growth in wages and salaries that are at levels which are historically consistent with OPR of at least three per cent.
"This a case of Bank Negara shifting its monetary policy from accommodative from a record low of 1.75 per cent previously to a neutral level of three per cent, which means it is not restrictive like in major advanced economies like the United States.
"This means Bank Negara is trying to strike a balance between addressing inflation and supporting growth, and I believe that recent improvement between the ringgit and the US dollar eases the pressure on the central bank's interest rate policy," said Suhaimi.
Meanwhile, Suhaimi said there would be several mitigations to the downside risk of Malaysia's economic outlook, including the drawdown of excess savings as a buffer to consumer spending and inbound tourism recovery.
Maybank IB estimated international tourist arrivals to be 15 million this year.
The strong approved foreign direct investment would also be positive for the capital expenditure outlook amid tech-driven investment.
Suhaimi added that Malaysia's green economy opportunities and growth from addressing climate risk would also play a role in mitigating the downside risk in the economic outlook.