4Q23 GDP edges up slightly to 3.4 pct, missing market expectations

The Department of Statistics Malaysia (DOSM), has released its second quarterly advance gross domestic product (GDP) release which showed the fourth quarter of 2023 (4Q23) GDP edging up slightly from a 3.3 per cent in 3Q23 to 3.4 per cent.

While it was a marginal improvement, it had disappointed as it missed market expectations of a more robust 4.1 per cent growth during the period.

In an economic viewpoint report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) reported that the 4Q23 GDP had also missed their expectations of a 3.7 per cent growth.

The negative variance in their forecast was largely due to lower-than-expected growths in the manufacturing, construction and services sector.

For manufacturing, DOSM reported a 0.1 per cent growth during the period, a slight rebound of -0.1 per cent from the previous quarter.

This is far below Kenanga Research’s forecast of a 1.5 per cent growth for the sector as they had anticipated manufacturing of vegetable and animal oils and fats, processing of non-metallic products, and manufacturing of metal and fabricated metal products to support a strong rebound in the sector.

“However, the growth momentum was capped by the decline in electrical, electronics and optical products, and petroleum, chemical, rubber and plastics products,” they explained.

Similarly in the construction and services segments, the research arm forecasted a growth of 5.7 and 4.9 per cent but actual growth came in lower at 2.5 and 4.7 per cent.

On a positive note, agriculture and mining segments saw higher than expected rebounds of 1.2 and 3.7 per cent compared to Kenanga research’s forecasted 0.9 and 1.3 per cent.

The agro sector expanded for the second straight quarter from 0.9 per cent in 3Q23 due to improved production of palm oil, while the mining sector saw strong rebound from -0.1 per cent in the previous quarter as it experienced a broadbased expansion, especially in natural gas and crude oil and condensate.

While the final 2023 GDP is only expected to be released by the DOSM on Feb 16, Kenanga research guides that it is likely to match the advance GDP estimate of 3.8 per cent, within their estimates of 3.5 to 4.0 per cent but lower than the ministry of finance’s (MoF’s) forecast of circa 4.0 per cent.

According to Kenanga Research, 2023’s GDP has been mainly hampered by a weak manufacturing export-oriented sector that was dragged by China’s fragile post-pandemic recovery.

“This was further worsened by the extended global supply chain disruptions due to escalating geopolitical tensions, notably the Russia-Ukraine war and IsraelGaza conflict.

“This was evidenced by the subdued Manufacturing PMI in December of 47.9, staying in contraction since August 2022. In addition, exports have been in a decline since March 2023, with the full-year growth contracting by 8.0 per cent from 24.9 per cent in 2022,” the research arm highlighted.

That said Kenanga Research is expecting 2024’s GDP growth to trend higher at 4.9 per cent as they anticipate domestic demand to support GDP growth alongside China’s gradual recovery and a potential recovery in the manufacturing sector driven by an E&E upcycle in the second half of the year.

This view is in line with MoF’s own projection of a 4.0 to 5.0 per cent GDP growth in 2024.