Summary 

• Global economic growth is expected to slow in 2H2023, as tightening monetary policy raises the risk of an adverse policy mistake. While normalising supply chains could support the recovery, maintaining economic momentum after the post-pandemic surge will be challenging.
• Asian economies are likely to experience a slowdown alongside the global economy, albeit milder than that of advanced economies. Monetary policy in emerging economies appears to be more mixed than the advanced economies, necessary to avoid hampering the recovery.
• We maintain our 2023 gross domestic product (GDP) growth forecast at 4.2%. The impact of tighter monetary conditions and a weaker external environment on domestic growth would likely be evident from 2Q2023 GDP data. As we approach 2024, a change to more dovish monetary policy could ease financial conditions and provide an impetus for economic growth.
• We foresee inflation to soften this year and well into 2024, from 3.3% in 2022 to 2.8% in 2023 and 2.5% in 2024. Given the presence of global economic risks together with the easing inflation trend, Bank Negara Malaysia (BNM) is likely to keep the overnight policy rate (OPR) unchanged at 3.00% for the remainder of the year.