Malaysia's Growth Momentum Expected To Spill Into 2024: MIDF

Growth prospects are expected to improve given the slower contraction in Malaysia's Leading Index, which fell by -0.3%yoy in Sep-23 (Aug-23: -0.5%yoy). The decline in Sep-23 was the slowest fall in 7 months of contraction since Mar-23. In particular, LI components which recorded increases were the number of housings approved and Bursa Malaysia Industrial Index.

From month-to-month perspective, LI fell by -0.4%mom (Aug-23: +0.7%mom) due to reduction in real imports of other basis precious & other nonferrous metals and number of new companies registered. For the Coincident Index (CI), the continued rise by +2.1%yoy, the same growth as in Aug-23, signals the overall economy thus far still grew higher than last year. This was mainly backed by increases in real EPF contributions and retail trade volume. Compared to Aug-23, the CI rose further by +0.2%mom (Aug-23: +0.1%mom), primarily due to the higher employment in the manufacturing sector. The further improvement in LI is in line with MIDF's expectations as it expects growth outlook will gradually improve in the 4QCY23. Despite the persistent moderate momentum because of the weak external trade, continued growth in CI also signals the country's economic growth remained in the positives, as shown by the sustained GDP growth in 3QCY2.

MIDF maintains its forecast that Malaysia's economy will be able to register growth at +4.2%, moderating from +8.7% expansion in 2022. Despite the drag from weak external demand, the continued growth in domestic spending and investment activities underpin the sustained growth this year. This was backed by healthy labour market conditions, positive income growth and tourism sector recovery.

Going forward, the house expects growth momentum to improve from 4QCY23 onwards as it expects external trade will continue to pick going into 2024. Nevertheless, several risks could derail growth outlook such as escalation of geo-political tensions, possible supply disruptions, fluctuations in the commodity and financial markets and possibility of sharp decline in external demand. Domestically, MIDF said it is wary on the elevated price outlook in view of the planned policy changes by the government, which could affect consumer spending next year.