Malaysia’s economic growth to moderate to 4.5% in 2023, says IMF

The International Monetary Fund (IMF) has projected Malaysia’s economic growth to moderate to 4.5% in 2023, reflecting largely the global external headwinds.

In a statement on 1st June, the IMF executive board said inflation is projected to remain elevated at 3.3% in 2023, with likely persistence in core inflation amid a positive output gap, and evidence of a build-up of demand-side pressures.

It said that over the medium term, the current account surplus is projected to widen as the pandemic-related travel restrictions are lifted, leading to an improvement of the services balance, and as imports moderate.

The IMF said Malaysia registered a strong post-pandemic recovery in 2022.

It said after a modest recovery in 2021, growth rebounded strongly in 2022, driven by pent-up domestic demand and resilient export performance, following the re-opening of the economy in April 2022.

Malaysia’s 2022 external position is preliminarily assessed to be stronger than warranted by fundamentals and desired policies, said the fund.

IMF said that downside risks, mostly external, cloud the near-term outlook.

It said external risks include the possibility of an abrupt global slowdown or recession, with an associated spike in global risk premia, capital outflows and sudden stop risks.

Geo-economic fragmentation and geopolitical tensions resulting in a reconfiguration of trade, supply disruptions and rising input costs among other disturbances, could negatively affect Malaysia’s growth prospects.

The IMF urged the authorities to stand ready to manage downside risks and policy trade-offs, if and when warranted.

It said monetary policy should tighten further to bring the stance to a neutral position, and Bank Negara Malaysia should continue to clearly communicate the rationale for its policy decisions, given the rapidly evolving landscape and high uncertainty.

Tighter monetary policy will ensure inflation expectations remain well-anchored, while also creating space for monetary policy to respond to downside risks.

The flexible exchange rate regime has served Malaysia well, and the authorities’ continued commitment to exchange rate flexibility is welcome.

The IMF said the authorities’ intentions under the 12MP to credibly enhance economic resilience, move toward net zero greenhouse gas emissions and promote inclusive growth, is welcome.

“The start of the new government provides a timely opportunity to forge ahead with a concerted reform agenda.

“Robust governance and anti-corruption reforms, including the implementation of the strategies outlined in the National Anti-Corruption Plan, would strengthen the management of the public finances, and improve public sector service delivery,” it said.