KUALA LUMPUR, Jan. 20 (Xinhua) -- Citi Research analysts on Friday forecasted Malaysia's economic growth to moderate to 4 percent in 2023 on base effects and external headwinds.
The research house said in a statement that China's optimization of its COVID-19 strategy could provide a substantial cushion against headwinds from the European Union and U.S. recessions.
"We raised Malaysia's 2022 gross domestic product forecast to 8.7 percent, substantially above the Ministry of Finance (MOF)'s forecast of 6.5 percent to 7 percent, and see a moderation to 4 percent in 2023," said Citi head of ASEAN economics Kit Wei Zheng.
Citi Research said that going into 2023, labor demand is expected to remain resilient with unemployment rates falling towards pre-pandemic levels, though a full implementation of the 25-percent minimum wage hike from the second half could add to wage pressures, with unit labor costs further lifted by the cyclical slowdown in productivity.
On the Central Bank of Malaysia (BNM)'s decision to maintain the overnight policy rate at 2.75 percent, Citi Research sees this as an intermittent pause, not just to allow for more time to assess the impact of earlier hikes, but changes to the balance of risks from policy adjustments in the budget, as well as China's optimization of its COVID-19 strategy.
"With core inflation still seen elevated (despite moderating) and risks to the upside, we expect at least another 25 basis points (bps) hike in March, and another 25 bps in May, with further hikes in the second half possible," it said.
On the global front, Citi Research said it continues to see "rolling country-level recessions", with high inflation and tight monetary policy likely to plague the outlook as geopolitical challenges persist.
According to Citi Research, the pace of global growth this year is likely to decline to just over 2 percent, nearly a percentage point weaker than last year's near-trend performance.