Asia's 2023 economic outlook: Gloomy start but not for long, Malaysia relatively resilient -- ICAEW

KUALA LUMPUR, Dec 7 (Bernama) -- Asian economies are expected to see a gloomy start in 2023, but it would not be for long with Malaysia seen to be relatively resilient among ASEAN countries, said the Institute of Chartered Accountants in England and Wales (ICAEW).

ICAEW noted that experts and analysts have warned of an impending recession in 2023 with inflation affecting many countries globally, along with supply chain disruptions.

“The rise in commodity prices and freight rates have since been corrected due to a sharp decline in consumer demand.

“Though there is a clear indication that a recession is due, Asia is expected to stand strong amid a gloomy outlook,” ICAEW said in its Economic Insight Forum for the fourth quarter (Q4) of 2022.

Although the global economy is expected to face a decline for the first two quarters of next year, the recession would be milder compared to past recessions in history, it added.

And despite a potential turn for the better in the second half of the year, Asia’s export-oriented manufacturing is expected to take a hit in 2023 with Korea and Taiwan forecast to see a steep 40 per cent drop in their merchandise export growth value while ASEAN countries will fare slightly better with a 20 per cent drop.

“In general, the dip in manufacturing production in advanced economies will ultimately hinder Asia’s production growth,” it said.

ICAEW also highlighted that one of the key pillars of growth - tourism - is expected to face some slack in 2023 unlike the vast improvements seen in 2021 and 2022 when borders first reopened.

International travel to South East Asia is also expected to see a slower pace of recovery in 2023 compared to the South Asia and Oceania regions.

“Due to Malaysia’s GDP being relatively less dependent on net trade and tourism compared to other emerging economies in ASEAN, it is projected to also be less impacted by exogenous factors and the global recession being forecast next year,” it highlighted.

Despite the challenges, ICAEW said long-term growth prospects remain positive with China’s “plus one strategy,” which involves the diversification of business investment and supply chain ecosystems, vital to the growth of ASEAN economies.

“Placed favourably in the ecosystem diversification, Malaysia, for instance, is well placed to pick up on mid to high-value supply chain systems with Indonesia looking to catch on aggressively.

“In addition, countries like Vietnam remain a paramount source of labour-intensive manufacturing and production. As such, ASEAN is expected to still see promising growth in years to come,” it added.

As for Malaysia, the country is expected to see record domestic demand in 2022 and is projected to contribute the highest percentage to its GDP in the last two decades.

It noted that Malaysia has one of the highest gross government debt to GDP ratios in the region, and given that the budget deficit is not projected to drop by much, there is limited fiscal space for policy offsets.

GDP growth in Malaysia is projected to shrink from 9.2 per cent in 2022 to 2.7 per cent in 2023, it said.

-- BERNAMA