KUALA LUMPUR: Malaysia's economic momentum is expected to remain challenged by soft global demand and other headwinds in the second half of 2023, RAM Ratings said.
The firm projects Malaysia's gross domestic product (GDP) growth to slow to 4.0-5.0 per cent this year from 8.7 per cent in 2022.
"Overall GDP growth decelerated to 4.2 per cent year-on-year in 1H 2023 (2H 2022: 10.4 per cent) as global trade slowed and the semiconductor downcycle bit into exports.
"Exports declined 6.4 per cent y-o-y in volume terms in 1H. Base effects knocked the figures down further," RAM added.
Domestic demand, the key driver of economic growth, was also softer at
4.5 per cent in 1H 2023 compared to 9.9 per cent in 2H of 2022 as spending behaviour normalised.
The weakening momentum seen in the second quarter of 2023 is likely to persist through the rest of the year as external headwinds loom large.
A spike in global food and commodity
prices due to supply distortion by geopolitics and/or tariffs is a key downside risk that could inflate domestic prices and put a brake on local consumption demand.
Lacklustre global demand, aggravated in particular by China's property crisis, could crimp Malaysia's export growth.
Nevertheless, there are bright spots on the horizon that could see the country eke out growth of 4.5 per cent to 5.5 per cent in 2024.
"The labour market continues to stay robust, powering domestic demand. Recent data also indicates tentative signs of the current electrical and electronic downturn bottoming out, potentially lifting exports next year," RAM said.
The resolution of labour shortage issues could provide additional impetus to growth of laggard sectors like agriculture and construction.
Bets are now increasingly on a soft landing for the US economy, leading to possibly a less severe global slowdown.