Slightly exceeded market expectation – Malaysia posted 4Q2021 Real GDP of 3.6% which is better than the market expectation (consensus mean GDP forecast: 3.3%) and strong rebound from 3Q21: -4.5% yoy. The better performance of economy was mainly led by the easing of containment measures which spurred economic activities in Manufacturing, Services and Agriculture sectors and strong external demand conditions. Overall, Malaysian economy grew at 3.1% yoy for full year 2021 compared with -5.6% yoy in 2020.

Mixed performance on supply side. Service sector grew 3.2% YoY in 4Q21 (vs 3Q21: -4.9% YoY) largely attributed to the strong growths of Information & communication, Transportation & storage and Finance & insurance sub-sectors. Overall, the service sector increased by 1.9% yoy (2020: -5.5% yoy). Meanwhile, Manufacturing Sector was the main contributor in supply side in 4Q21 which surged 9.1% after shrinking 0.8% in 3Q21. The strong rebound was mainly spurred by the expansion in all subsegments especially Electrical, electronic and optical products which recorded a double-digit growth of +16.4% yoy and Petroleum, chemical, rubber and plastic products which grew 6.5% yoy. Overall, Manufacturing sector grew 9.5% yoy in 2021 (2020: -2.6%) backed by the strong external demand and easing of containment in manufacturing activities. Agriculture sector improved by +2.8% yoy in 4Q21 from -1.9% from 3Q21 mainly underpinned by Oil Palm sub sector which rose +4.8% yoy as compared to -11.1% yoy in the previous quarter as we believe it was due to the surge of Crude Palm Oil (CPO) price and the improvement in production as the recovery from the labour shortages situation.

Contraction in Mining & Quarrying and Construction sectors. Mining & Quarrying sector posted a marginal decrease of 0.9% (3Q21: -3.6%) mainly caused by the lower production of Crude oil and condensate. Nevertheless, the contraction was partially cushioned by the Natural gas subsegment which was up +3.9% yoy in 4Q21. Overall, the Mining & Quarrying sector eased 0.7% yoy in 2021 against - 10.6% in 2020. On the same note, Construction sector continued its sluggish performance in 4Q21 as it plunged 12.2% yoy (3Q21: -20.6%). The unfavourable performance was in tandem with the major sub-segments particularly the Residential and non-residential buildings and Civil engineering. For full year 2021, Construction sector continued its decline, -5.2% yoy from year 2020: -19.4% as we believe this was lack of infrastructure and large-scale construction projects planned by the government.

Rebound of Final Consumption Expenditure. The Final Consumption Expenditure increased 3.8% in 4Q21 from -2.2% in 3Q21, boosted by booth private and public demand. In 4Q21, Private Consumption rose 3.7% yoy (vs 3Q21 : -4.2%) supported by the higher demand on essential items namely Food & non-alcoholic beverages; Communication; and Housing, water, electricity, gas & other fuels and the rebound of Restaurants & Hotels and Transport in the quarter. Meanwhile, Public Consumption moderated its growth to +4.3% in 4Q21 from +8.1% in previous quarter. The largest contributor to the growth in Public Consumption was the spending on supplies and services in the health-related expenditure. As for overall 2021, Private Consumption grew by 1.9% yoy (2020:-4.3% yoy) while Public Consumption further expanded to 6.6% from +3.9% in 2020.

Gross Fixed Capital Formation (GFCF) registered decrease of 3.3% yoy in 4Q21 compare to - 10.8% yoy in 3Q21. The decreased was mainly due to the decrease in Structure and Other assets which declined 15.5% yoy and 3.1% respectively. However, the weak performance was partially cushioned by the strong growth in Machinery & Equipment which +16.4% yoy in tandem with the better performance in Manufacturing sector in the supply side. GFCF in Private sector which accounted for 66.2% in the total GFCF declined 3% yoy while Public sector GFCF (33.8%) slid 3.8% yoy. As overall, GFCF had a marginally decline of 0.9% in 2021 (2020: -14.5%).

External trade expanded further with its growth in Exports, rising 13.3% yoy in 4Q21 (3Q21: + 5.1% yoy) and Imports rose 14.6% yoy in 4Q21 (3Q21: +11.7% yoy). Overall for 2021, both Exports and Imports registered positive yoy growth of 15.9% (2020: -8.9%) and 18.5% (2020: -8.4%) respectively. The robust external trade performance was mainly due to the rebound from the impact of the pandemic in 2020. Thus, Malaysia’s trade surplus in 2021 reached an historical high of surpassing RM2 trillion for the first time. The resilient growth was boosted by strong trade of E&E products (+17.8% yoy), petroleum products (+54.6% yoy), metal (+67.1% yoy), palm oil (+41.55% yoy), rubber products (+45.8% yoy) and chemical products (+39.3% yoy) with all posted double-digit growths driven by the robust external demand coupled with higher commodity prices mainly caused by the supply chain disruption. We expect Malaysia’s external trade to sustain its positive momentum backed by the continuous strong demand from E&E products and commodity-based products as well as the soothing recovery of supply chain disruption.

2022 outlook remains robust while downside risks persist. 2021’s economy was partially recovered from year 2020 in which we witnessed Real GDP grew +3.1% yoy in 2021 and we believe the positive momentum will be continued in 2022 as the year deemed as the economic recovery year for Malaysia. The recovery is in terms of the easing of containment measures, reopening of international border, recovery in labour market in tandem with rising production. Hence, we project the 2022 full year real GDP to grow by +5.8% yoy underpinned by the above mentioned reasons. We expect the Agriculture, Manufacturing and Construction sectors in the Supply side and Private & Public consumptions as well as the External trade on the demand side will be the main key drivers of growth for 2022. Nevertheless, the downside risks in the likes of surge of Covid-19 cases arising from the Omicron variant, inflationary pressure which could elevate business cost and hence affecting the personal consumption would potentially dent the positive momentum and economic recovery of the nation in 2022.

Source: JF Apex Securities Research - 14 Feb 2022