Latest data on Malaysia continues to point to a robust economic recovery after poor 2021 growth of 3.1% affected by the Delta COVID wave. Retail sales rose 37% year on year in June and August. Private consumption accounted for c.113% of Q2 GDP growth (Malaysia – Accommodation to be scaled back further).
Revenge spending, early pension fund withdrawals, wages hikes amid a recovering labour market, and vehicle sales tax exemption were the main drivers. Loan growth since August has risen more than 6% y/y, driven by loans to the manufacturing sector, despite weakness in construction and real estate activity. The latter may be a function of labour supply which is expected to improve in the quarters ahead.
Industrial production data also points to strong external and domestic demand. Export-oriented industrial activity grew 12% in August, led by electronic production. This is despite weaker regional electronics activity. Meanwhile, domestic-oriented sectors rose 25% in August, partly boosted by low base effects. That said, accoridinng to Standard Chartered they are of view on a longer-term there may still be room for domestic industrial production to play catch up.
External demand for Malaysia’s exports remains strong. September exports rose 30%. On a volume basis, exports rose 10%. Malaysia’s external demand remains strong for both electronics and commodities, though we expect electronics demand to waver in the months ahead.
Looking ahead, a weak global growth outlook may result in external demand moderating for Malaysia’s external-oriented sectors. Nevertheless, the country may enjoy some tailwinds from the reopening of international borders. Tourist arrivals are
back to 50% of pre-COVID levels, with considerable room to recover. Meanwhile, domestic demand may continue to support growth in the quarters ahead