Surpassing market expectation – Malaysia’s 3Q22 GDP recorded a Real GDP that was stronger than the market’s expectation (mean: 11.4%) after surging 14.2% yoy (vs 2Q22: 8.9% yoy) and positioning us as one of the fastest growing Southeast Asian economies in 3QCY22. After seasonal adjustment, the economy eased its growth to +1.9% qoq from 3.5% qoq in 2Q22. The outstanding performance was due to all main sectors registering a better growth on the supply side driven by  Services, Manufacturing and Mining & Quarrying sectors. On demand side, private sector consumption and Gross fixed capital formation (GFCF) has continued to propel the economy.

Supply side remained robust but growth eased… Service sector grew stronger at 16.7% yoy in 3Q22 (vs 2Q22: +12.0% yoy) but in terms after being seasonally adjusted, it grew 1.3% qoq (vs  2Q22: 4.2% qoq). This was underpinned by the wholesale and retail trade sub-sector which increased  24.4% yoy (vs 2Q22: 17.3% yoy). Furthermore, the transportation and storage sub-sector remained outstanding with a solid growth of 41.4% yoy (vs 2Q22: 35.8% yoy). Apart from that, the food &  beverage and accommodation sub-sector showed a robust performance as it surged to 51.2% yoy (vs  2Q22: 35.3% yoy). Nonetheless, Information and communication grew +4.5% yoy (vs 2Q22:  +5.9%). Manufaturing sector expanded further to 13.2% yoy compared to +9.2% yoy in 2Q22 but eased after seasonally adjustment to +1.8% qoq (vs 2Q22: +2.6% qoq). The growth of the manufacturing sector was mainly driven by Electrical, electronic & optical products, which accelerated to 17.3% from 15.5% yoy in 2Q22. Noteworthy, chemical, rubber and plastic products rebounded to  +4.1% yoy from a decline of 0.9% yoy in 2Q22.

Construction Sector continued its positive momentum after rising 15.3% yoy from +2.4% yoy in  2Q22. However, in terms of seasonally adjustment, the sector grew marginally at 0.8% qoq which eased from +7.5% qoq in 2Q22. The stellar yoy performance was mainly driven by Non-residential buildings and Specialised construction activities which expanded to +30.5% yoy and +13.7% yoy respectively. In addition, Civil engineering rebounded to +10.1% yoy from a decline of 8.2% yoy in the previous quarter.

Mining & Quarrying and Agriculture sector rebounded from last quarter. Mining and  Quarrying returned to the green territory after rising 9.2% yoy from -0.5% yoy last quarter. In terms of seasonally adjustment, the sector posted a growth of +7.5% qoq (vs 2Q22 : +0.3% qoq).  The remarkable performance supported by expansion in all sub-sectors, notablly Natural gas which grew +13.6% yoy in tandem with higher gas production in the quarter. Furthermore, Crude oil and condensate has shown a rebound after growing 2.5% yoy from -2.8% yoy in the last quarter.  Agriculture sector grew by 1.2% yoy compared to -2.4% yoy in preceding quarter. After being seasonally adjusted, the sector has further expanded to +2.5% qoq from +0.3% qoq last quarter.  The growth was mainly attributed to a better performance in the Oil palm sub-sector which increased to 5.1% yoy from Q2: -3.9% yoy owing to higher production of fresh fruit bunches. Moreover, Fishing grew 3.8% yoy and Livestock grew 2.5% yoy. Nonetheless, Rubber and Other agriculture sub-sectors remained in red territory at -16.5% yoy and -3.7% yoy, respectively.

Demand Side. Final consumption sector eased its growth to +13.1% yoy in 3Q22 from 15.3% yoy in 2Q22. Private consumption sustained a growth of 15.1% yoy (2Q22: +18.3% yoy)  supported by higher consumption of Transport, Restaurants & hotels and Recreation services &  culture. After being seasonally adjusted, Private consumption slowed its growth to +1.2% qoq from  +6.8% qoq last quarter. Meanwhile, Government consumption grew 4.5% yoy (2Q22: +2.6% yoy). In terms of seasonally adjustment, it recovered to +4.3% qoq from -3.1% qoq in the preceding quarter.

Gross Fixed Capital Formation (GFCF) surged to 13.1% yoy from +5.8% in 2Q22. After being seasonally adjusted, GFCG increased +2% from +1.3% last quarter. The stellar performance in the sector was fuelled by strong momentum in Structure and Machinery & equipment which recorded a growth of +16.7% yoy from 2Q22: +3.8% yoy and +10.7% yoy from 2Q22: +9.6% yoy, respectively. Private investment (80.3% of GFCF) has expanded further to 13.2% yoy from +6.3% yoy in the  preceding quarter. Public investment grew stronger as well after recording +13.1% yoy from +3.2%  yoy in the previous quarter.

External trade continued to expand. Malaysia’s trade continued its upward trajectory in 3Q22  after registering double-digit growths for trade, exports, imports and trade surplus. Net external trade rose +20.5% yoy and +6.2% qoq in 3Q22. Exports expanded by 23.9% yoy (2Q22: +10.4%  yoy) and +4.5% qoq (2Q22: +6.9% qoq). Imports continuously recorded double-digit growth of  24.4% yoy (2Q22: +14.0% yoy) and 1.3% qoq (2Q22: +6.0% qoq). The external trade performance was mainly driven by electrical and electronic (E&E) products, petroleum products, liquefied natural gas (LNG), crude petroleum, optical and scientific equipment as well as machinery, equipment and parts.

Expect slower economic growth in 4Q and FY23 with uncertain global economy.

Malaysia’s 9M22 economic growth of +9.3% yoy was supported by low base effect from the negative growth in 2021, improvement in labour market, continued expansion in global demand as well as ongoing policy support. However, growth is easing in 3Q22 from quarter to quarter although it beat  market expectations. We expect the economy will further grow in 4Q22 and FY23 supported by improvement in labour market and domestic & external demand but at a slower rate. We believe the  Malaysian economy is headed for a cyclical slowdown in 4Q22 and FY23 amid tightening monetary policy, fear of global recession and geopolitical tensions. We revise up our full year 2022 GDP  forecast to +8.1% yoy from +5.5% yoy due to stellar performance in 3Q. Furthermore, we maintain our FY23 GDP forecast at a slower growth of +2.1% yoy.

Headline inflation is likely to have peaked at Aug 2022 (+4.7%). 9M22 CPI of +3.2% yoy was largely driven by elevated commodity prices and supply chain disruption during the year. Our  FY22 full year core inflation forecast is at +3.3% yoy while our FY23 CPI forecast is at +2.3% yoy, supported by tightening monetary policy and high base in FY22. Nonetheless, inflation is facing headwinds with unclear global oil prices and supply chain concern from geopolitical tensions which could adversely impact domestic inflation. We expect BNM will raise another 75 bps in FY23 to 3.5%  OPR to tame inflationary pressure and to strengthen the MYR.

Source: JF Apex Securities Research - 14 Nov 2022