Surpassed market expectation – Malaysia’s 4Q22 GDP grew 7% yoy (vs 3Q22: 14.2% yoy) while 2022 full year GDP grew 8.7% yoy compared to +3.1% in 2021. This puts Malaysia among the highest growth among Asean countries. The +8.7% yoy performance surpassed the government’s forecast of 6.5% to 7%. After seasonally adjusted, the economy dropped by 2.6% qoq (vs 3Q22: +1.9% qoq). Private consumption remained as the key driver for growth (+7.4% yoy) due to improved labour market conditions. While in the supply side, the economy’s performance was led by Services, Manufacturing and Mining & quarrying sectors.

Supply side remained robust but growth eased. Service sector grew 8.9% yoy in 4Q22 (vs 3Q22: +16.7% yoy) but after seasonal adjustment, it shrank by 2.6% qoq (vs 3Q22 +1.3% qoq). The growth of the segment was mainly driven by Wholesale & Retail trade (+9.8% yoy) and Transportation & Storage (+22.6% yoy). Overall, Service sector registered a 10.9% growth in 2022 (vs: 1.9% in 2021).

Manufaturing sector eased its growth to +3.9% yoy in 4Q22 compared to +13.2% yoy in 3Q22. In term of seasonally adjustment, the sector posted -2.4% qoq (vs 3Q22: +1.8% qoq). There is moderation of growth in all sub-segments mainly influenced by Electrical, electronic and optical products which moderated its growth to 9.2% yoy from +17.3% yoy in previous quarter due to global semiconductor slowdown. Overall, Manufacturing sector registered a 8.1% growth in 2022 (vs: 9.5% in 2021).

Construction Sector rose 10.1% yoy in 4Q22 from +15.3% yoy in 3Q22. In terms of seasonally adjustment, the sector contracted 7.3% qoq compared to +10.1% qoq in 3Q22. Civil engineering was the main driver to the sector after strengthening to +17.9% from +10.1% in 3Q22. In full year 2022, the construction sector has rebounded +5% yoy from -5.2% yoy in 2021 due to the low base during MCO.

Mining and Quarrying sector continued its growth at +6.8% yoy in 4Q22 (vs 3Q22: +9.2% yoy). After being seasonally adjusted, the sector posted -3.7% qoq (vs 3Q22 : +7.5% qoq). The growth of the sector was supported by the Natural gas sub-segment which grew +7.4% yoy (vs 3Q22 : +13.6% yoy). Overall, the segment grew 3.4% yoy in 2022 against +0.3% yoy in 2021.

Agriculture sector was flat after growing +1.1% yoy compared to +1.2% yoy in the preceding quarter. After seasonally adjusted, the sector increased +1.4% qoq compared to +2.5% qoq last quarter. The growth in the sector was mainly attributed to a better performance in Oil palm sub-sector which increased 9.6% yoy from +5.1% yoy in 3Q22 owing to higher production of fresh fruit bunches. Moreover, Fishing and Forestry & Logging slipped by 0.7% yoy and 5.5% yoy respectively. Overall, the sector posted a marginal increase of +0.1% yoy compared to -0.2% yoy in 2021.

Demand Side - Final consumption sector eased its growth to +6.3% yoy for 4Q22 from +13.1% yoy in 3Q22. Private consumption sustained its growth at +7.4% yoy (3Q22: +15.1% yoy) supported by higher consumption in Transport, Housing, Utility, gas & other and Recreation services & culture. After being seasonally adjusted, Private consumption declined further to -2.9% qoq from -1.2% qoq last quarter. Overall, Private consumption surged to 11.3% yoy in 2022 compared to +1.9% yoy in 2021 mainly due to improved labour market conditions and reopening of economy.

Government consumption moderated to +2.4% yoy compared to +4.5% yoy in the preceding quarter. Supplies and Services act as the main contributor to growth. In terms of seasonally adjustment, Government consumption contracted 5.4% qoq (vs 3Q22: +4.3% qoq). Overall, Government consumption eased to +3.9% yoy in 2022 (2021: +5.3%).

Gross Fixed Capital Formation (GFCF) rose 8.8% yoy against +13.1% in 3Q22. After being seasonally adjusted, GFCG increased +0.3% qoq compared to +2% qoq in last quarter. The stellar performance in the sector was fuelled by the Structure and Machinery & Equipment sub-segment which recorded a growth of +9.9% yoy. Private investment (which constitute 67.1% of total GFCF) expanded to +10.3% yoy (vs 3Q22: +13.2% yoy). Meanwhile, Public investment grew 6% yoy (vs 3Q22: +13.1% yoy). Overall, GFCF rebounded to 6.8% yoy in 2022 compared to -0.9% yoy in 2021.

External trade moderated. Malaysia’s external trade has moderated in line with slower economic worldwide. Exports eased to +9.6% yoy (3Q22: +23.9% yoy) and -5.8% qoq (3Q22: +4.5% qoq). The slower exports performance was in line with the weaker external trade, Nonetheless, this was partly offset by the resilient performance in E&E products (+17.3% yoy vs 3Q22: +41.4% yoy) amid strong demand from Singapore, US and China. Imports decelerated to +18.7% yoy in 4Q22 (vs 3Q22: +46.5%) which reflects the moderation in domestic demand and slower pace of inventory build-up. Overall, Exports registered a 12.8% yoy growth and Imports registered +14.2% yoy in 2022.

Expect moderate pace of economic growth in FY23 with challenging external headwinds. Malaysia’s 2022 economic growth of +8.7% yoy was supported by stimulus measures by the government and a low base in 2021. We expect 2023 GDP still show a healthy growth but with a more moderate pace amid various external headwinds. We envisage 2023 GDP to be driven by robust domestic demand with the improvement in labour market conditions. In the supply side, Services and Manufacturing sectors are expected to continue to support growth. Furthermore, with the unity government being formed, we believe political uncertainties will be reduced and smoother policy implementation will be paved. Meanwhile, we opine that growth in 2023 will be cushioned by weaker external trade, mainly dragged by global economic slowdown, inflationary pressure, and tightened monetary policy particularly in Europe and the US. It is inevitable for Malaysia to be excluded from the ripple effects. We revise up our 2023 GDP full year forecast to +3.8% yoy from +3.3% yoy previously due to the unexpected interest rate decision by Bank Negara in January 23.

Headline inflation is likely to moderate. We expect inflation to trend lower coming into 2023 underpinned by the initiative of price controls by the government and high base. However, we believe inflation will still remain elevated in 1H23 supported by the lingering input cost and robust domestic demand pressures. We expect a last round of 25bps hike in OPR by BNM and peak at 3% in FY23 in order to strengthen the local currency and safeguard the outflow of foreign funds. Our 2023 CPI forecast is at +2.8% yoy compared to +3.4% yoy in 2022.

Source: JF Apex Securities Research - 13 Feb 2023