Slower Growth Predicted for Southeast Asia, Including Malaysia

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(TheCapitalPost) – Analysts are warning of a bleak outlook for ASEAN economies, including Malaysia, citing the conclusion of China’s post-pandemic recovery, past interest rate hikes by the United States Federal Reserve, a sluggish semiconductor sector, and subdued domestic demand. Despite a mixed performance in GDP growth last quarter, the region is expected to face a growth slowdown in the third quarter of 2023, according to a report by Oxford Economics commissioned by the Institute of Chartered Accountants in England and Wales (ICAEW).


The report projects that growth in the ASEAN-6 region (comprising Malaysia, Indonesia, Philippines, Singapore, Thailand, and Vietnam) is likely to be around 3.6% in the second half of 2023. This represents a decline from 4.2% in the first half of the year and a substantial drop from the 5.7% growth seen in 2022.

Several factors contribute to the anticipated slowdown in Q3. The post-pandemic recovery in the Chinese economy has decelerated, causing consensus growth forecasts to be revised downwards. Additionally, the full impact of the United States Federal Reserve’s interest rate hike of 550 basis points, and its subsequent spillover effects on ASEAN interest rates, is yet to be fully realized. Weak semiconductor prices are also affecting countries like Singapore and Malaysia.

However, the primary headwind to growth remains the export sector. Following a boom in the early stages of the pandemic, exports of goods experienced a sharp decline last year, and this trend continues. This slowdown largely results from a shift in global demand away from goods towards services. While external demand composition is expected to normalize in the coming months, overall demand is expected to remain moderate.

The resilience of domestic demand in Southeast Asia is expected to diminish over an extended period due to limited growth in real wages and rising debt among lower-income households, particularly in Thailand.

Malaysia: A Positive Outlook with Moderate Growth

Despite the challenges in maintaining high growth rates, Malaysia’s economic outlook remains cautiously positive. The nation’s diverse economic sectors, particularly the tourism industry, show signs of recovery and expansion. While some areas require monitoring, the overall outlook suggests potentially sustainable growth in the years ahead.

Malaysia experienced a GDP growth slowdown to 2.9% in Q2 year-on-year, down from 5.6% in Q1. Nevertheless, quarterly momentum remains robust, growing to 1.5% quarter-on-quarter in Q2, up from 0.9% in Q1. This momentum is attributed to the strength of domestic demand and a resurgence in the travel sector.

Significant increases in private consumption, government spending, and investment have contributed to a more stable outlook for the Malaysian economy. However, sustaining high growth rates may pose challenges, given headwinds such as high personal debt burdens and reduced savings among households.

The tourism sector plays a significant role in Malaysia’s current economic landscape. While tourist arrivals did not witness significant growth in the first half of the year, changes in visitor demographics, such as fewer short trips from Singapore but an increase in high-spending Chinese travelers, are expected to boost tourism receipts.

However, the export sector faces challenges due to falling export earnings, which will impact businesses’ hiring and spending plans, compounded by a challenging export environment. Economic data from China, Malaysia’s largest export partner, has deteriorated in recent months, tempering hopes for substantial economic improvements elsewhere. Demand from the rest of the world is expected to falter as growth is curbed by tight monetary policy.


Despite these challenges, Malaysia’s GDP growth is projected to reach 3% this year, following the impressive 8.7% growth in 2022. This projection is based on a realistic assessment of the economic landscape. Achieving higher estimates would require exceptionally strong growth in Q3 and Q4.

In light of this growth trajectory, Bank Negara Malaysia is expected to maintain a policy rate of 3% throughout 2023 and 2024. Inflation is of lesser concern, having decreased to 2.0% year-on-year in July from a peak of 4.7% in August 2022.

Regional Inflation Trends

Across ASEAN, the trend of falling headline inflation is expected to continue, even though core inflation is generally more stable. South-East Asia’s CPI inflation is forecasted at 3.5% for this year, down from 4.6% in 2022, with an expected further drop to 2.4% in 2024.

Central banks in the region are likely to have reached the peak of their rate-hiking cycles, with some already cutting interest rates. However, these rate cuts may be delayed due to China’s rapid slowdown, which may put pressure on ASEAN currencies.

Additional Insights from the Economic Update Q3 2023 Include:

Singapore: The Monetary Authority of Singapore is likely to begin easing policy early next year, given the economy’s contraction in the first half of the year and its dependence on subdued global demand.

Indonesia: The export sector is expected to drag down the economy as the global economy slows. Domestic demand, which has been resilient, will likely weaken due to the lagged impact of monetary tightening.

Vietnam: The construction sector rebounded strongly in Q2, resulting in better-than-expected GDP growth. However, weak global demand remains a challenge, though fresh policy support is expected to provide some relief in the second half of the year.

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