2023Q2: Sustaining Economic Resilience Amid Persistent Challenges

2 August 2023

A. WORLD ECONOMIC OUTLOOK UPDATE

GLOBAL OUTLOOK REMAINS WEIGHED DOWN BY PERSISTENT CORE INFLATION AND HIGHER INTEREST RATES

Global economic growth remains weak but not as bad as feared. Advanced economies show growth supported by domestic demand and labor market conditions, but geopolitical uncertainties, high inflation, higher interest rates, and climate change continue to pose risks.
High-frequency data indicates slowing global economic growth.
The US economy remains resilient in 2Q 2023 underpinned by strong labour market conditions and continued wage growth.
The euro area grew marginally by 0.3% QoQ in 2Q. Rising interest rates, high inflation albeit moderating, and global headwinds continue to challenge economic momentum in 2Q.
Japan’s economy will continue to expand due to recovering consumer spending (benefitting from easing of pandemic restrictions) and private non-residential investment.
China's GDP growth picks up due to a favorable base effect, but underlying momentum is slowing, and youth unemployment remains a concern.
Headline inflation is ebbing, but core inflation remains a focus, with tight labor markets pressuring services prices.
The global monetary tightening cycle is slowing, and inflation trends will determine central bank policy moves.

B. MALAYSIA ECONOMIC OUTLOOK UPDATE

SLOWER GROWTH IN 2H 2023

After a spectacular growth of 8.7% in 2022, the Malaysian economy has normalised, growing at a sustainable rate of 5.6% yoy in 1Q 2023, driven mainly by domestic demand.
GDP growth to average 4.0%-5.0% in 2H 2023. Our tracking of high-frequency data has shown that the Malaysian economy has moderated in recent months, especially demand for our exports while consumer spending has normalised.
Manufacturing sales growth has moderated, while distributive trade continues to expand, supported by retail sales and potential tourism recovery.
Exports declined, and the banking sector's outstanding loan growth softened.
Headline inflation has eased, but food and services inflation remains high, leading to consumers tightening discretionary spending.
Private investment growth has slowed, but there are catalysts for investment, such as high investment approvals and ongoing public infrastructure projects.
Bank Negara Malaysia is expected to keep the overnight policy rate unchanged at 3.00% in 2023, considering global growth concerns, moderating domestic economic growth, and easing inflation. However, renewed inflation pressure may lead to further rate hikes if economic growth remains steady.

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