The better-than-expected GDP growth in 2Q22 boosted the 1H22 GDP growth, which rebounded sharply by 6.9% (2H21: -0.4%). As the positive effect is expected to subside on the expectation of slowing global demand, Kenanga projects growth to moderate to 4.5% in 2H22. Nonetheless, growth would likely remain supported by improved labour market conditions and a gradual pickup in tourism activities.
This will be further supported by public spending: ongoing mega infrastructure projects (e.g. JENDELA, MRT2, MRT3, Pan-Borneo Highway) and various subsidies. On the external side, demand is expected to remain resilient albeit moderating,
supported mainly by the COVID-19 vaccinations and booster progress among trading partners. This will be further buoyed by elevated commodity prices and growth recovery as China is expected to eventually ease its COVID-19 restrictions and gradually reopen its economy and borders.
Against this backdrop, Kenanga still maintains its outlook that domestic growth remains susceptible to several downside
risks, mainly from weaker-than-expected global economic growth. This comes amid rising inflation and the
acceleration in monetary policy tightening by major central banks, which would likely impede the growth of private
consumption. In addition, prolonged global supply chain disruptions due to China’s zero-COVID policy may drag
down economic growth and trigger contagion risk on regional economies with strong trade ties, including Malaysia.
Meanwhile, geopolitical tension will likely exacerbate global supply disruptions, with a further escalation in the Russia-Ukraine war, fears of China’s invasion of Taiwan, and possible renewed US-China tensions. Likewise, the US Fed’s more aggressive monetary policy tightening to combat elevated inflation would probably put the brakes on private spending and further aggravate global financial market volatility.
With the expectation of a global economic slowdown in the coming year brought about by the rising the prospect of a recession, mainly in the US and Europe, as well as the growing uncertainty in the recovery of China’s economy, the research house maintains its 2023 GDP growth forecast of 4.0% – 4.5% (midpoint: 4.3%)
