THE Malaysian gross domestic product (GDP) is projected to expand by 8.5% year-on-year (yoy) in 2Q 2022 from 5.0% in the previous quarter, driven by the transition to endemic phase, strong fiscal support as well as low base effects.

The 2Q 2022 GDP data will be released on Aug 12 (Friday).

Although its assessment does not account for the Services Index which will be published on the eve of the GDP release (Aug 11), CGS-CIMB Research said the Distributive Trade Index which is a decent proxy for the services industry points towards a robust performance for the sector.

“In our view, the services sector will solidify its hold as the major driver of growth in 2Q 2022,” opined chief economist Nazmi Idrus in an economic update.

This, according to the research house, is bolstered by the following factors:

• The transition to endemic phase alongside border re-opening and quarantine removal in April 2022 allowed for further normalisation of economic activities, especially in the tourism-related segment;
• Policy support, particularly the EPF (Employee Provident Fund) Special Withdrawal of up to RM10,000, boosted consumers’ spending power; and
• The lockdowns (MCO3.0) due to COVID-19 that began in May 2021 resulted in low base effects, hence pushing some indicators upwards in 2Q 2022.

Of worthy mention is that the Distributive Trade Index – a measure of sales performance – expanded in 2Q 22 by a strong 18.4% yoy, and 9.5% qoq on a seasonally adjusted basis, spurred by motor vehicle sales and retail spending (which in part is due to the low base and strong pent-up demand).

Moreover, the manufacturing index which is a subset of the Industrial Production Index (IPI), expanded by 6.9% yoy in 2Q 2022 (1Q 2022: 4.5%), boosted largely by the domestic-oriented segment such as transport equipment, non-metallic minerals (for construction) as well as food & beverage (F&B).

In a similar fashion, the external-oriented segment also performed quite well. The electrical and electronic (E&E) segment continued to outperform with a growth of 15.3% yoy in 2Q 2022 following a robust growth of 16.5% yoy in 1Q 2022.

“Onwards, the likely solid 2Q 2022 GDP performance growth could continue into 3Q 2022 as the low base effects linger,” foresees CGS-CIMB Research. “Barring the base effects, the underlying economic momentum will likely be much softer as pent-up demand dissipates.”

In a related development, the research house still expects Bank Negara Malaysia (BNM) to continue pursuing its normalisation cycle with another 25 basis points (bps) hike in its Sept 8 meeting to lift the overnight policy rate (OPR) to 2.50% by end-2022.

“As for GDP growth, we maintain our 2022 forecast at 6.2% yoy (2023: 5.0%) for now pending the actual 2Q 2022 release,” added CGS-CIMB Research. – Aug 10, 2022