Better Than Expected GDP Number Has Economists Revise Growth Target

Bank Negara Governor announced that Malaysia’s economy registered stronger growth of +8.9% for the second quarter beating most market projections. This was driven mainly by the continued pick-up in domestic economic activities following the further reopening of the economy as well as international borders. Not only did production activity improve for most sectors, but robust consumer spending also contributed to stronger growth.

While external trade also grew faster during the quarter, the trade surplus was smaller than 1QCY22 because higher commodity prices resulted in bigger imports. Compared to regional economies, Malaysia joins Indonesia and Singapore to record higher growth, better than the Philippines and other East Asian economies that saw stable or moderate growth in 2QCY22. On quarter-to-quarter basis, Malaysia’s seasonally adjusted GDP grew by +3.5%qoq, the third straight quarter of expansion since the fourth quarter of last year. Apart from the relaxation of Covid-19 SOPs, the low base effect, particularly when the nationwide lockdown started in June last year, also contributed to the higher-than-expected annual growth in the second quarter.

Taking into account the stronger-than-expected growth in 2QCY22 which resulted in a +6.9% expansion for 1HCY22, research house MIDF has revised its 2022 GDP growth projection higher to +6.6% from +6.0% previously. It foresees the positive growth momentum to continue in 2HCY22, looking at the continued pick-up in consumer spending, improved business activities and even sustained growth in the external demand.

Further improvement in the labour market and better employment prospects will help to support consumption expenditures, although consumers are more cautious in their financial and spending plans in response to the rise in the cost of living. A recent MIER survey highlighted this was among key concerns which affected consumer sentiment recently. Nevertheless, the positive effect of further economic reopening and the transition towards the endemic phase will support stronger growth this year, especially normalisation in the domestic economy.

But, the research firm remains wary of the possible downward risks mostly from external developments such as weak recovery in China’s economy, risk of recession and a sharper slowdown in the US (and the global economy), the ongoing war in Ukraine, escalation of geopolitical tensions, and high inflationary pressures globally from elevated commodity prices

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