Domestic demand to further expand by 5.1 pct in 2023 - MOF

It said the economy is expected to remain resilient with domestic demand continuing to drive growth amid the softening global environment.

"At 5.8 per cent, the private sector expenditure's share to the gross domestic product (GDP) will be at 76.2 per cent and the public sector expenditure's two per cent share to GDP is at 17 per cent," the ministry said in its Economic Outlook Report 2023 released today.

The country's inflation rate is forecast to range between 2.8 per cent and 3.3 per cent in 2023 and the unemployment rate to record in the range of 3.5 per cent to 3.7 per cent.

It said private consumption, which has been robust despite global uncertainties, is anticipated to grow by 6.3 per cent with growth forecast to be supported by continuous improvement in the labour market as well as robust economic and social activities particularly the tourism-related activities.

The special financial assistance in January 2023 to civil servants and pensioners will support household disposable income and stimulate private spending.

Meanwhile, private investment is projected to register a growth of 3.7 per cent attributed to an increase in capital spending in the technology-intensive manufacturing and services sectors, particularly ICT-related machinery and equipment.

Capital outlays continue to complement the private sector in developing the country. Among major projects expected to commence in 2023 are MRT3, Sarawak-Sabah Link Road Phase 2 and the Trans Borneo Highway.

"The continuation of large-scale transport-related projects such as ECRL, LRT3 and RTS Link will also provide impetus to public investment and these initiatives are expected to boost public investment by 2.1 per cent in 2023.

"Public consumption is also projected to expand by two per cent on account of higher spending on emoluments mainly due to special additional annual salary increment for civil servants," according to the report.

The MoF noted that in line with the expansion in domestic economic activities, the national income in current prices is expected to increase by 6.2 per cent.

The country's gross national savings (GNS) is anticipated to expand by 0.4 per cent, with total investments envisaged to contract by 5.4 per cent to RM358.6 billion.

The share of GNS is projected to remain significant at 24.7 per cent of gross national income (GNI) and the savings-investment gap is expected to remain in surplus at RM73 billion or 4.2 per cent of GNI.

"This provides ample liquidity in the financial system, which can be mobilised to finance long-term productive investments without sourcing external funds," it said.

The report noted that the share of compensation for employees to gross domestic product is projected to rise to 35.2 per cent in 2023, while the gross operating surplus (GOS) of GDP is forecast to decline to 62.2 per cent in 2023 with a sizeable percentage of GOS continuing to be received by capital owners.

"In line with the expectation of strong economic growth supported by continued efforts to prevent revenue leakages and strategies to implement a wider tax base, income from indirect tax and non-tax revenue on production and imports is projected to expand by 7.5 per cent.

"Meanwhile, with the expiration of the COVID-19 fund assistance, subsidy expenditure is expected to decrease significantly by 50.2 per cent, thus, income from taxes less subsidies on production and imports is expected to record a larger increase in 2023," it said.

The MoF said that next year, the gross exports are expected to moderate by 2.2 per cent across all sectors, supported by modest external demand due to lacklustre growth following global uncertainties arising from prolonged geopolitical tensions, supply chain disruptions and volatility in global commodity prices.

Gross imports are expected to increase marginally by 0.2 per cent on account of high demand for capital, intermediate and consumption goods, indicating sustained domestic demand and improvement in investment activities.

The current account balance is expected to record a surplus of RM73 billion or 4.2 per cent of GNI in 2023, in line with continuous improvement in economic activities.

For 2022, the services sector is projected to grow by 8.2 per cent with almost all subsectors recording positive growth, the wholesale and retail trade is projected to record a significant growth of 8.7 per cent, while the transportation and storage subsector to increase by 27.6 per cent.