UOB expects Malaysia’s robust fundamentals to support economy amid uncertainties in 2023

KUALA LUMPUR: Malaysia’s robust fundamentals are expected to support the economy further and defend against uncertainties ahead in 2023, UOB Malaysia said.

In a statement yesterday, the bank said the heightened volatility in global financial markets and the local currency had not derailed Malaysia’s economy as domestic liquidity and functioning of domestic markets remained stable.

“In Malaysia, external demand is expected to moderate with the softer global growth (this year).

“Thus, domestic demand will remain the prime driver of Malaysia’s economy as household spending is underpinned by improving labour market conditions and prospects of higher tourism activity,” managing director and country head of personal financial services Ronnie Lim said.

Lim said investments would be supported by realising infrastructure projects and improved domestic conditions to attract foreign direct investments.

He said further efforts to expand digitalisation, sustainability and decarbonisation activities would drive new growth areas.

Nevertheless, he said potential downside risks to the growth outlook could stem from weaker-than-expected global growth, higher risk aversion in global financial markets, further escalation of geopolitical tensions, volatile commodity prices, worsening supply chain disruptions and climate-related risks.

“Overall, there are grounds for optimism as Malaysia’s diversified economic structure provides underlying strength and resilience.

“Ongoing policy support with the re-tabling of Budget 2023, anticipated in the early part of this year, as well as an accommodative monetary policy will serve to support sustainable economic growth,” he said.

On the global market, Lim said that given the backdrop of high inflation and aggressive monetary policy tightening, there would be heightened risks of developed economies, such as the United States and Europe including the United Kingdom, potentially slipping into recession this year as financial conditions tighten while consumer and business confidence declines.

He said any recession would eventually be short and shallow, assuming the labour market does not weaken drastically and central bank tightening tapers off.

“A quicker-than-expected Covid re-opening in China will also be a positive factor, helping to offset some of the downside risks for the coming year and benefiting the global outlook.

“Nonetheless, we believe that emerging market economies, particularly Asean, should outperform as financial conditions there are expected to remain more benign,” he added.