KUALA LUMPUR: WEAK external demand towards the end of 2023 likely hampered Malaysia's economic growth for the fourth quarter and full year, causing it to miss Bank Negara Malaysia's 4.0 per cent growth target for 2023.
Bank Negara is scheduled to announce the growth figures today.
The fourth quarter and full-year figures are expected to have missed earlier forecasts of 4.1 per cent and 4.0 per cent, respectively.
The Statistics Department's advance estimates for the fourth quarter stood at 3.4 per cent, bringing economic growth to 3.8 per cent in 2023.
Bank Muamalat Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said weak external demand likely dragged down the overall GDP performance, as reflected by the contraction in the manufacturing industrial production index (IPI) of 0.2 per cent in the fourth quarter.
"The mining-related output along with the services sector would have been the key driver for growth in the final quarter of 2023.
"This can be reflected in the positive growth mining sub-index within the IPI, which grew 4.3 per cent in the fourth quarter after experiencing two consecutive quarters of decline, while services continued to grow at a positive rate of 4.1 per cent, albeit slower than 5.1 per cent in the previous quarter."
OCBC Bank senior Asean economist Lavanya Venkateswaran said there could be a modest upward revision to the fourth quarter GDP growth estimate to 3.6 per cent versus the advance estimates of 3.4 per cent.
"This is based on modestly better-than-expected December services sector activity and industrial output data," she said.
She expects the GDP for 2023 to have expanded 3.8 per cent.
Malaysia University of Science and Technology economics professor Geoffrey Williams said the Statistics Department's advance estimates are often viewed as a good indication of the final outcome.
"The reason for the missed the forecast is because that estimate assumes that the economy will return to an underlying growth potential similar to the pre-pandemic level.
"In fact, the new underlying growth potential is lower because of the damage done by the lockdown.
"In addition, the global economy has not been as strong as expected, especially in China, and this has an effect on net trade and domestic activity as firms cut spending because overseas demand is sluggish."
Although the economy might not have reached the targeted growth last year, the situation is not expected to continue this year.
Williams said the economy is more stable now and will grow at between 3.0 and 4.0 per cent.
"We expect interest rates and fiscal policy to support this stability. There will be no rebound."
For 2024, Williams expects growth at around 3.5 per cent, with a risk of contraction in the first quarter, which would mean a technical recession.
Afzanizam shared the positive growth sentiment for this year, likely to be driven by improving external demand, especially in key sectors such as semiconductor.
Moreover, the weak ringgit may attract more foreign tourists which could boost the sector.
"Higher allocation for development spending totalling RM90 billion should accelerate the construction sector.
"GDP growth should be better this year although business and consumer sentiment will remain guarded as the cost of doing business is expected to remain elevated," he added.
As for this year, Lavanya holds a cautiously optimistic view and expects growth to pick up to 4.2 per cent from the projected 3.8 per cent in 2023.
She said the forecast is based on stabilising household spending, a bottoming of the electronics export downcycle and strong reform momentum which will bolster government and private sector investment spending.