Malaysia – 2Q22 Chalks Up 8.9% Growth

2Q22 GDP grew better than expectation, up 8.9% y/y versus expectations of 8.4% y/y and consensus of 6.7% y/y. This brings the average 1H22 GDP to 6.9% y/y.

On a quarter-on-quarter basis, the economy grew by 1.7% in 2Q22 versus a contraction of 3.0% q/q in 1Q22.

The 2Q22’s domestic economy of 8.9% y/y is the best performance in this region. Singapore grew by 4.4% y/y, while Indonesia by 5.4%, Vietnam 7.7%, and the Philippines 7.4%.

Following the strong 1H22 performance, we now expect 2H22 GDP to also perform well. Part of 2H22 GDP performance would be supported by the low base of -0.4% in 2H21.

Besides the low base, we foresee the economy to continue benefiting from strong export earnings backed by firm commodity prices, a still healthy global semiconductor environment, resource-based exports, and FDI inflows.

Also, domestic activities, primarily private expenditure, will continue to lend support to the overall economic performance. A pick-up in tourism activities following the opening of the borders would benefit tourism and tourism-related industries. Increasing employment and an accelerating growth traction in the informal sectors, especially the gig economy and the focus on sustainability i.e., ESG, will add positive impetus to private expenditure.

But the upside to the economy is being contained by shortages of foreign workers at the entry level and talents. These have resulted in significant opportunity loss to the businesses as well as revenue to the government. Businesses are struggling to cope with existing orders.

To add fuel to fire, they are also hurt by supply chain disruptions and high costs. As a result, we are losing new orders to our neighbours like Vietnam and Indonesia.

Also, we can expect some degree of knock-on impact from the ongoing geopolitical risk and uncertainties on the external front with a growing risk of a slower global GDP and trade in 2022. We project global GDP and trade will expand by 2.7% y/y and 3.5% y/y, respectively.

Despite some headwinds, we expect the overall momentum to remain positive in 2022. This is reflected by the healthy loan growth of 5.6% y/y as at end-June 2022, where business loans grew by 5.3% y/y and consumer loans by 5.9% y/y. The leading indicator also suggested that the potential outlook remains favourable, reading at 111.2 (May’s reading).

On that note, we have baked in another 25bps OPR rate hike in September with a probability of 40% for another 25bps in November supported by healthy potential incoming data that reflects a pick-up in demand pressures.

As for the GDP outlook for 2022, we have revised upwards our projection. Our base case GDP growth target for 2022 is now 6.4% (previously: 5.6%) with the upside at 6.7% (previous: 6.0%) and downside of 5.9% (previous: 4.8%).

Source: AmInvest Research - 15 Aug 2022