Real GDP slowed to +7.0% YoY in 4Q22 (3Q22: +14.2% YoY), slightly above our forecast of +6.8% YoY and consensus estimate of +6.7% YoY. On the supply side, softer growth was seen across the board. Meanwhile on the demand front, growth was buoyed mainly by private consumption. In 2022, GDP came in at +8.7% YoY, surpassing our forecast of +8.2% YoY (2021: +3.1% YoY). In view of the persisting external headwinds and diminishing base effect, we maintain our 2023 GDP forecast at +4.0% YoY.

DATA HIGHLIGHTS

In 4Q22, real GDP slowed sharply to +7.0% YoY (3Q22: +14.2% YoY), slightly above our forecast of +6.8% YoY and consensus estimate of +6.7% YoY as low base effect dissipates. Nonetheless, GDP still recorded another three months of positive growth (+8.3% YoY; Nov: +5.7% YoY; Oct: +7.0% YoY). However, GDP contracted on a quarterly s.a. basis (-2.6%; 3Q22: +1.9%). Following this, 2022 GDP came in at +8.7% YoY, surpassing our forecast of +8.2% YoY.  

On the demand front, growth was mainly supported by continued expansion in private consumption (+7.4% YoY; 3Q22: +15.1% YoY), albeit at a softer pace. Net exports also registered higher contribution (+1.6ppt; 3Q22: +1.0ppt) to overall growth, following stronger net exports growth (+23.4% YoY; 3Q22: +18.7% YoY).  

I. Private consumption continued to grow (+7.4% YoY; 3Q22: +15.1% YoY), albeit at a slower pace, on the back of improving labour conditions and support from policy measures. Spending was mainly concentrated in food & non alcoholic beverages (+5.5% YoY; 3Q22: +6.8% YoY), housing, utilities & other fuels (+10.0% YoY; 3Q22: +6.2% YoY), as well as transport (11.7% YoY; 3Q22: +56.7% YoY). Strong consumption was also seen in discretionary items such as recreational services and culture (+42.7% YoY; 3Q22: +76.1% YoY).  

II. Gross fixed capital formation moderated (+8.8% YoY; 3Q22: +13.1% YoY), following slower investment in both structures (+9.9% YoY; 3Q22: +16.7% YoY) and machinery & equipment (+8.6% YoY; 3Q22: +10.7% YoY). Meanwhile, public investment grew +6.0% YoY (3Q22: +13.1% YoY).  

III. Public consumption expanded at a more moderate pace (+2.4% YoY; 3Q22: +4.5% YoY). Growth remained supported by government spending on supplies and services.  

IV. Meanwhile, net exports recorded a higher contribution of +1.6ppt (3Q22: +1.0ppt) to overall GDP growth, owing to the resilient demand for E&E. Exports and imports grew +9.6% YoY (3Q22: +23.9% YoY) and +8.1% YoY (3Q22: +24.4% YoY) respectively.  

On the Supply Side, Softer Growth Was Seen Across the Board.  

I. The agriculture sector grew by a softer pace of +1.1% YoY (3Q22: +1.2% YoY). Despite palm oil production recording stronger growth of +9.6% YoY (3Q22: +5.1% YoY), following improved yields and labour situation, this was offset by weaker outcome from rubber production, forestry and logging and others.  

II. Similarly, growth in the mining sector slowed pace (+6.8% YoY; 3Q22: +9.2% YoY), following slower natural gas production (+7.4% YoY; 3Q22: +13.6% YoY), which offset the pickup in crude oil production (+5.2% YoY; 3Q22: +2.5% YoY).

III. The manufacturing sector also moderated (+3.9% YoY; 3Q22: +13.2% YoY), following softer production across most items. Nevertheless, growth was still supported by the E&E cluster, other consumer products, as well as petrochemicals; electrical, electronic and optical products (+9.2% YoY; 3Q22: +17.3% YoY), refined petroleum products (+4.6% YoY; 3Q22: +10.5% YoY) and chemical products (+1.5% YoY; 3Q22: +3.7% YoY). Manufacturing growth was also supported by production in motor vehicles and transport equipment (+5.0% YoY; 3Q22: +41.5% YoY), mainly owing to the fulfilment of backlog in orders.  

IV. The construction sector posted softer growth but remained resilient at +10.1% YoY (3Q22: +15.3% YoY). Growth was driven by the continued progress of large infrastructure, commercial and industrial projects in the civil engineering (+17.9% YoY; 3Q22: +10.1% YoY) and non-residential subsectors (+10.7% YoY; 3Q22: +30.5% YoY).  

V. The services sector also moderated (+8.9% YoY; 3Q22: +16.7% YoY), following weaker growth across the board. Support mainly came from consumer-related subsectors, albeit at a slower pace, amid the better labour market conditions and uptick in tourism activities; retail trade (+19.2% YoY; 3Q22: +28.0% YoY), food & beverages (+14.8% YoY; 3Q22: +31.0% YoY), and accommodation (+78.6% YoY; 3Q22: +294.7% YoY). The sector also benefitted from improvements in real estate (+34.0% YoY; 3Q22: +34.6% YoY) and business services activities (+23.7% YoY; 3Q22: +35.4% YoY).  

Current account (CA) surplus widened to RM25.7bn or 5.5% of GNI (3Q22: RM14.1bn or 3.1% of GNI), on account of higher surplus registered in the goods account (RM51.7bn; 3Q22: RM43.0bn). The services account also recorded a smaller deficit of -RM8.6bn (3Q22: -RM9.6bn), due to higher travel receipts during the quarter following further recovery in tourism activities. In addition, the primary account deficit narrowed (-RM11.5bn; 3Q22: -RM17.2bn), owing to higher investment income generated by Malaysian firms investing abroad.  

HLIB’S VIEW  

Malaysia posted its fastest GDP growth in more than two decades at +8.7% YoY in 2022, large part due to strong pent-up demand and low base effect. In view of the external headwinds and diminishing base effect, we maintain our expectation for Malaysia to grow at a more moderate pace of 4.0% this year. Nonetheless, China’s recent reopening is anticipated to help push the recovery in tourist arrivals and lend some support to export growth. Domestic demand is also expected to continue to support growth, albeit at a more moderate pace, amid the continued gradual recovery in the labour market. We maintain our 2023 GDP forecast at +4.0% YoY.  

For 2023, BNM reiterated that the Malaysian economy will continue to be supported by domestic demand, underpinned by continued improvements in the labour market and the realisation of multi-year investment projects. Risks to the outlook however remains titled to the downside, stemming from weaker global growth, tighter financial conditions, re-escalation of geopolitical tensions and supply chain disruptions. On inflation, BNM expects both headline and core inflation to moderate but remain elevated amid lingering cost and demand pressures. Nevertheless, the outlook remains highly subject to any domestic policy changes and global commodity price developments. Taking these into account, we think BNM could increase OPR by another 25bps should upside risks materialise.

Source: Hong Leong Investment Bank Research - 13 Feb 2023