We expect 1Q22 GDP to record stronger growth of +4.7% YoY (consensus forecast: +4.0% YoY; 4Q21: +3.6% YoY), underpinned by stronger performance in the services sector amid further easing of restrictions. Meanwhile, the mining and construction sectors are likely to post another quarter of contraction. Pending the release of actual 1Q22 GDP print, we keep our 2022 forecast unchanged at 5.5% and expect BNM to raise OPR by another 50bps in 2H22.

Based on latest indicators, we now expect 1Q22 GDP to expand by +4.7% YoY, higher than consensus median forecast of +4.0% YoY. 1Q22 GDP will be released on 13 May 2022.

1Q22 GDP: Growth is expected to be led by strong performance in the services sector amid further easing of restrictions. Manufacturing and agriculture sectors are projected to moderate, while mining and construction are likely to post another quarter of contraction.

We expect an acceleration in services sector growth consistent with the volume index of services (+7.1% YoY; 4Q21: +3.0% YoY), mainly driven by improvements in wholesale & retail trade, food & beverages, accommodation and transportation & storage subsectors as tourism activities picked up. Manufacturing production remained on an uptrend, albeit at a more modest pace (+6.3% YoY; 4Q21: +9.2% YoY). The sector was mainly supported by export-oriented industries (+6.7% YoY; 4Q21: +9.8% YoY) amid strong demand for E&E and wood products. Domestic-oriented industries, meanwhile, grew at a softer pace (+5.4% YoY; 4Q21: +6.7% YoY). Palm oil production also posted softer growth in 1Q22 (+4.4% YoY; 4Q21: +6.1% YoY), as the subsector continued to experience shortage of labour amid the seasonal low production period, suggesting moderate growth for the agriculture sector during the quarter. Meanwhile, another quarter of contraction is expected for the mining and construction sectors. This follows a -1.8% YoY dip in mining IPI (4Q21: -1.2% YoY) as steeper decline in crude petroleum production (-8.5% YoY; 4Q21: -7.0% YoY) offset growth in natural gas production (+3.3% YoY; 4Q21: +3.4% YoY). For the construction sector, a smaller rate of contraction is expected, possibly due to flood incidents. This is reflected by the value of construction work done (-6.1% YoY; 4Q21: -12.9% YoY) dragged by residential and civil engineering works.

On the expenditure front, Malaysia’s net export performance remained robust in 1Q22 owing to elevated commodity prices as well as E&E demand, which will contribute positively to overall 1Q22 GDP. Meanwhile, private consumption activity is anticipated to accelerate following increased tourism and retail spending amid improvements in labour market conditions. This is supported by positive wage growth in manufacturing (+4.1% YoY; 4Q21: +4.7% YoY) and services sectors (+5.0% YoY; 4Q21: +1.2% YoY), as well as decline in unemployment rate (4.1%; 4Q21: 4.3%). Capital imports continued to post double-digit growth (+18.3% YoY; 4Q21: +22.7% YoY), pointing to positive gross fixed capital formation in 1Q22.

2022 GDP: We expect growth to continue its positive trajectory in 2022. Consumption activity is anticipated to pick up further with full reopening of economic activity as the nation transitions to endemicity, alongside higher disposable income with the EPF special withdrawal scheme and minimum wage hike. Nevertheless, the outlook remains susceptible to risks of slower-than-expected global growth, worsening supply chain disruptions and geopolitical tensions. We maintain our 2022 GDP forecast at 5.5% and for BNM to raise OPR by another 50bps in July and September MPC meetings on expectations of continued recovery in Malaysia’s economy.

Source: Hong Leong Investment Bank Research - 13 May 2022