• 3Q22 GDP expanded by 14.2% YoY, a sharp improvement against 8.9% in 2Q21 and -4.5% in 3Q21

• Demand-side was supported by both the private (3Q22: +14.7%; 3Q21: - 4.4%) and public sectors (3Q22: +6.3%; 3Q21: -3.5%)

• It was a broad recovery in the supply side led by services sector (3Q22:  +16.7%; 3Q21: -4.9%) thanks to full economic openings, improvement in labour condition and steady return of tourists.

OVERVIEW

Malaysia’s growth momentum surged to a one of the highest post COVID-19 pandemic on the back of solid 3Q22 growth thanks to broad-base increase across all sectors particularly services which benefitted greatly from full global economic re-openings. Output that expanded by a strong 14.2% YoY in 3Q22, a  reacceleration against 2Q22 of 8.9% and a sharp rebound against a year ago,  was also lifted by a base advantage following activity that contracted last year  (3Q21: -4.5%). Recall that Malaysia was still in partial lockdown measures and therefore, some restriction on social and economic activities following the implementation of National Recovery Plan (NRP) Phase 2 in some key states  (e.g., Selangor, Wilayah Persekutuan Putrajaya, Johor). This emerged to be a  bane to output and hence, a decline in economic momentum. That said, the quarter’s economic momentum was also pushed by favourable external conditions especially in ASEAN and major economies amid full economic openings post COVID-19. Output remained supported by a lagged impact of massive fiscal stimulus packages worth RM530bn (39%-of -GDP), expansionary  Fiscal Budget 2021/22 and accommodative interest rate environment particularly with measured pace of policy withdrawal by the central bank (3Q22  OPR: 2.25%; 3Q21: 1.75%). GDP also improved on a QoQ basis, seen in +1.9%  jump in 3Q22, a slowdown against 2Q22 (+3.5%) however. YTD growth average of 9.4% is likely to be ahead of our full year projection of 6.2% as there is little downside risks to growth in 4Q despite output that could be dampened by base effect disadvantage (4Q21: +3.6%). Note that MoF projects 2022 GDP to average at 6.5%-7.0%, suggesting a 4Q GDP growth range of -2.0% to 0.0%.

Demand-side was supported by both the private (3Q22: +14.7%;3Q21: -4.4%) and public sectors (3Q22: +6.3%; 3Q21: -3.5%), which could have been much higher if not for the government’s on-going fiscal consolidation drive. Exports of goods and services were solid, reflected by a jump of +23.9% YoY in 3Q22  (3Q21: +4.2%) powered among others by full economic openings in key economies and revival in demand post-pandemic. Exports of services were especially impressive after the segment penciling a YoY growth of 77.1% in 3Q22  (3Q21: +5.8%) significantly higher compared to the exports of products (3Q22:  19.5%; 3Q21: +4.0%). Imports were also impressive (3Q22: +24.4%; 3Q21:  +11.4%) especially intermediate goods, an impressive feat despite the headwinds facing our major import partner (i.e., China). Favourable trade condition pushed net exports to a YoY jump of 18.7% (3Q23: -39.9%).

Supply-side. It was a broad recovery in the supply side led by services (3Q22:  +16.7%; 3Q21: -4.9%), manufacturing (3Q22: +13.2%; 3Q21: -0.8%), agriculture  (3Q22: +1.2%; 3Q21: -2.0%) including previous laggards like construction (3Q22:  +15.3%; 3Q21: -20.6%) and mining (3Q22: +9.2%; 3Q21: -3.2%) thanks among others to various government incentives, full economic openings and persistent rally in global commodity prices especially crude oil and crude palm oil (CPO).  Manufacturing emerged as the key growth driver (3Q22: +13.2%; 3Q21: -0.8%), driven by a pent-up demand, global semiconductor up-cycle and hybrid arrangement for work and learning - a boon for computers and handheld devices. The rapid global transition towards 5G network also pushed demand,  a favourable condition that lifted output for handphone and smart devices and therefore, the sector’s form in 3Q.

On a QoQ and seasonally adjusted basis, Malaysia’s 3Q22 GDP that ticked 1.9%  faster (2Q22: +3.5%) is broadly in-sync with MIER Sentiment Index Survey amid both, Consumer Sentiment Index (CSI) and Business Condition Index (BCI), that surged near the neutral level. Sentiment could have been more encouraging however if not for persistent supply chain disruptions, raw material and labour shortages which have affected the composite index to some extent.

Output is expected to recover further in the near term thanks to full economic openings which came into effect in April particularly the borders reopening, a  boon for services and private consumption. Output will also be pushed by expansionary fiscal budget 2022/23 apart from steady external environment though we caution on the brewing headwinds particularly the sharp interest rate tightening in advanced economies (AEs), China’s strict COVID-19 lockdown policies and slower global growth projection next year (2.7%; 2022F: 3.2%). The global and domestic inflationary environment is also a concern as that may drive input cost higher and hence, aggregate consumption momentum. A stretched  global supply chain disruption due to lockdown measures in China and RussiaUkraine may also hamper recovery and therefore, our cautious sentiment in the  near term

Source: BIMB Securities Research - 11 Nov 2022