Sun, 29 Jan 2023

KUALA LUMPUR, Nov. 25 (Xinhua) -- Economists said Friday that they are upbeat on Malaysia's near-term outlook as political impasse ended with the formation of a unity government.

MIDF Research said in a note that it views the unity government as positive development for Malaysia's economy because the formation of the government will eventually lead toward an eventual retabling and review of the national budget 2023.

At this juncture, it said it is a critical time for Malaysia to ensure recovery from the global pandemic to be sustainable amid uncertainties on the external front going into 2023, as the global economy is surrounded with slowdown risk, global tightening of monetary policy, elevated commodity prices and geopolitical conflicts.

However, it opined that major and longer-term economic policy reforms may not take place smoothly because each party and coalition in the unity government has different interests and reform agenda.

After recording stronger than expected gross domestic product (GDP) growth in the third quarter at 14.2 percent year on year, the research house now foresees Malaysia's economy to expand by 8 percent this year.

As for next year, it expects the Malaysian economy to expand by 4.2 percent, mainly underpinned by improving domestic demand, steady consumer spending, lower unemployment rate and stable inflationary pressure.

It also believes expansionary fiscal spending will contribute positively to GDP growth next year.

Affin Hwang Investment Bank said in a note that it believes Malaysia will be able to be a destination for foreign direct investment (FDI) among multinational corporation, if right business policies are introduced and implemented by the new government.

It believes that improvement in the outlook on global FDI flows and domestic investment will lead to the realization of manufacturing and services investments in Malaysia in the coming years, which will sustain the country's gross fixed capital formation growth momentum.

Meanwhile, Kenanga Research said in a note that capital flows in Malaysia may improve, buoyed by the new unity government and easing global risk-aversion.

It said that November may see the return of foreign portfolio inflows for both equity and bond markets in Malaysia following the formation of a coalition government.

"Going forward, we expect modest capital inflows as foreign investors return amid the onset of domestic political stability and improving global risk sentiment," it said.

Moving into the first quarter of 2023, it said the local currency ringgit is expected to weaken to around the 4.64 level due to increasing divergence between Bank Negara Malaysia (BNM) and Fed policy rates.

Kenanga believes that the Pakatan Harapan-led government will remain supportive of private consumption via a sustained cash transfer program, especially to targeted income groups, lower and middle-income earners.

Since private consumption constitutes around 57.9 percent of GDP in 2021, it said any increase in the cash transfer or future policy uplifting household income, such as higher minimum wages and hiring incentives, would have a significant impact on consumption growth.

"This would partially offset the expected slowdown in public spending amid fiscal constraints, as well as slower exports due to the global economic downturn amid heightened recessionary risk in several major countries," it said.

Hence, it retained its 2022 GDP growth forecast of 8.6 percent following the better-than-expected third quarter GDP growth, with growth projected to moderate to 4.3 percent in 2023.

Public Invest Research maintained its GDP projections within the range of 7 percent to 8 percent and 3.5 percent to 4.5 percent in 2022 and 2023 respectively, as it believes there is little in terms of government strategy that will affect the economy's outlook in the near future.

"We believe the new government will likely maintain its real GDP growth forecast range of 4 percent and 5 percent in 2023, in line with the BNM official forecast, as compared to our forecast of 3.5 percent to 4.5 percent," it said.

Going into 2023, despite external uncertainties, it expects Malaysia's economy to still rely more on internally generated growth, especially from private consumption, which benefits from improving labor market conditions, steady income growth and increased tourist arrivals.

However, it said that downside risks to growth remain as some major government-funded construction projects could be reviewed while some businesses may postpone their investment decision until there are clarities about policies from the unity government.

Meanwhile, the Department of Statistics Malaysia (DOSM) said on Friday that the Malaysian economy is expected to maintain growth momentum, with the leading index recording 109.9 points in September, as compared to 109.6 points registered a year ago.

The increase was supported by the number of housing units approved and real imports of other basic precious and other non-ferrous metals.

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