PETALING JAYA: Even as economic uncertainties and headwinds intensify next year, Malaysia’s economy is expected to come out relatively unscathed to register positive growth, said RAM Ratings.

The credit ratings agency remains cautiously optimistic of the year ahead, with the Malaysian economy expected to continue on the path of recovery and recover lost ground incurred over the last two years.

It projects gross domestic product (GDP) growth to come in slower at 4%-5% in 2023. Domestic demand will remain the key driver for growth next year, supported by the continued recovery in the labour market and existing policy support measures, it said.

Its head of economic research Woon Khai Jhek said Malaysia’s stellar growth in 2022 should provide a sturdy base for growth in a challenging 2023, albeit a slower one.

Malaysia’s GDP year-to-date third quarter expanded by 9.3% year-on-year, and RAM Ratings estimates full year growth to reach 8.2%.

Due to the looming threat of a global recession, Malaysia’s economy will inevitably face downside risks next year.

“Malaysia cannot escape the ripple effects from slower global growth next year, which will directly soften external demand and dampen Malaysia’s export performance,” said Woon, speaking at its webinar ‘Economic Outlook 2023: Choppy Waters Ahead?”’

However, Malaysia’s broad and diversified domestic economy should help to prop up and mitigate the impact of weaker exports, he added.

That said, notable price pressures and tightening of monetary policy will likely dampen consumer spending. Headline inflation is anticipated to stay elevated at 2.7% in 2023 (2022e: 3.3%), although this is still subject to policy changes in domestic subsidies and global commodity prices next year.

RAM Ratings is expecting at least another 25 bps hike in the overnight policy rate in 2023 to bring the policy rate back to the pre-pandemic level of 3%.

Further escalation of geopolitical tensions, supply chain disruptions, labour shortages and political uncertainty on the domestic front could add pressure to 2023’s growth for the country, RAM Ratings added.

However, a faster than expected return of international travel and tourism are potential upsides to Malaysia’s growth, he noted.