Malaysia’s GDP growth is set to fall from 9.2% in 2022 to 2.7% in 2023, the Institute of Chartered Accountants in England and Wales (ICAEW) said in December 2022. Even so, the institute described the country as relatively resilient among its Southeast Asian neighbours. Bernama reported the findings, which came from ICAEW’s Economic Insight Forum for the fourth quarter of 2022.
A recession on the way
ICAEW noted that analysts were warning of a recession in 2023, with inflation hitting many countries and supply chains still disrupted. Commodity prices and freight rates had already come back down, it said, because consumer demand dropped sharply.
“Though there is a clear indication that a recession is due, Asia is expected to stand strong amid a gloomy outlook,” the institute said. The global economy was forecast to shrink in the first two quarters of 2023. It added that the downturn would be milder than past recessions, and that the second half of the year could turn for the better.
Exports and tourism
Asia’s factories were expected to take a hit. ICAEW forecast a 40% drop in the growth value of merchandise exports for Korea and Taiwan, and a 20% drop for Asean countries. “In general, the dip in manufacturing production in advanced economies will ultimately hinder Asia’s production growth,” it said.
Tourism, a main pillar of growth, was also set to lose steam after the strong gains of 2021 and 2022, when borders first reopened. Travel to Southeast Asia was forecast to recover more slowly in 2023 than travel to South Asia and Oceania.
Why Malaysia holds up better
The institute’s argument for Malaysia rests on exposure. Its GDP depends less on net trade and tourism than other emerging Asean economies, so ICAEW expected it to be less affected by outside shocks and the forecast global recession.
Domestic demand was another support. Malaysia was expected to record its highest ever level of domestic demand in 2022, which ICAEW projected would make the largest contribution to GDP in the last two decades.
There was a weak spot. Malaysia has one of the highest ratios of gross government debt to GDP in the region, and the budget deficit was not projected to fall by much. That left limited fiscal space, ICAEW said, for policy offsets.
Looking further out, the institute stayed positive on Asean. It pointed to China’s “plus one strategy,” in which businesses spread investment and supply chains across more countries. Malaysia was “well placed to pick up on mid- to high-value supply chain systems,” ICAEW said, with Indonesia moving aggressively to catch up. Vietnam, it added, remains a paramount source of labour-intensive manufacturing.
