Economists expect stronger GDP growth in 2Q

The central bank will be announcing the GDP figures on Friday


MALAYSIA is expected to record stronger GDP growth in the second quarter of 2022 (2Q22), surpassing the 5% year-on-year (YoY) growth rate registered in 1Q22.

Bank Negara Malaysia (BNM) is set to announce the 2Q’s GDP numbers on Friday (Aug 12).

Putra Business School Associate Prof Dr Ahmed Razman Abdul Latiff said the 2Q22 GDP growth will be positive and slightly higher than previous 1Q22 growth of 5%, underpinned by growing domestic demand.

He added that referring to the latest macroeconomic indicators provided by the Department of Statistics Malaysia, all indicated positive growth in terms of export value, positive current assets and trade balance, high foreign direct investment (FDI) and lower unemployment rate.  

“In addition, Singapore and Indonesia also registered higher 2Q GDP growth compared to 1Q due to greater regional economic activities this year,” he told The Malaysian Reserve (TMR) when contacted yesterday.

RHB Investment Bank Bhd economist Chin Yee Sian and associate research analyst Wong Xian Yong said the research firm maintained its GDP growth projection at 6.1% for 2Q22 in view of the robust economic indicators released.

They pointed out that the June’s Industrial Production Index (IPI) registered a higher growth of 12.1% YoY and the continued expansion in the S&P Global Malaysia Manufacturing Purchasing Managers Index signals a stable manufacturing sector performance going forward.  

Similarly, they said the Producer Price Index, which measures the costs of goods at the factory gate, has stayed elevated at double-digits growth, albeit at a slower momentum.

Meanwhile, the Malaysian Institute of Economic Research (MIER) highlighted that the country’s real GDP growth in 2Q22 needs to perform much better than 1Q22 and it must register at least 6% YoY growth.

In a recent report, the research firm said the anticipated stronger growth is likely achievable on the basis of all the positive signs and prevailing macro indicators.

It noted that Malaysia’s economic growth had gained momentum and private sector dynamism was “clearly back on track”.

MIER opined that nevertheless, the country has to find ways and means to further support these favourable developments, avoiding to a large extent restrictive measures that inhibit the growth process, especially in the medium and longer term.

“There are still short-term weaknesses in the macroeconomic fundamentals that are expected to persist in the second half of this year (2H22) and also next year.  

“These include continuing net outflows of portfolio and ‘other investments’ by domestic residents, rising cost of living, and elevated public sector and household debts,” it said.

While there is a less optimistic scenario in 2H22, MIER said the economic recovery process is still expected to continue, albeit at a moderate scale, as reflected by continuing strong growth in the IPI, steady expansion in exports of goods and services (amid rising imports), and continued inflows of FDI, among other factors.

Echoing similar views, the Asean+3 Macroeconomic Research Office (AMRO) in its latest 2022 Annual Consultation Report said the Malaysian economy is recovering strongly from the Covid-19 disruptions in 2021 and early 2022.  

The regional macroeconomic surveillance organisation added that protected by its high vaccination rate, nationwide inoculation programme and adequate healthcare capacity, Malaysia has progressively reopened its economy despite the resurgence of infections by the Omicron variant in early 2022.  

“Economic growth should firm up further with the country’s transition to the endemic phase of Covid-19 from the beginning of April.  

“In this respect, accommodative policy settings can be recalibrated to build more buffers against future shocks and safeguard financial stability,” it said.

Protected by its high vaccination rate, nationwide inoculation programme and adequate healthcare capacity, Malaysia has progressively reopened its economy despite the resurgence of infections by the Omicron variant in early 2022, AMRO says (pic: TMR)

According to AMRO, the Malaysian economy is on track to expand by 6% in 2022 after growth firmed up in 1Q on the back of a strong rebound in private consumption and buoyant exports.  

It added that headline inflation is set to increase moderately to 3% in 2022 from 2.5% in 2021, reflecting the partial pass-through of higher global food and energy prices to consumer prices.

“Robust trade, strong foreign investment inflows and a Special Drawing Right allocation from the International Monetary Fund, have allowed BNM to build up its reserves buffer in 2021.  

“The improvement in the reserves position has strengthened BNM’s capacity to withstand volatility shocks in capital flows,” it said.

On the other hand, Malaysia University of Science and Technology professor and economist Dr Geoffrey Williams expressed that the 2Q22 GDP numbers should be interpreted very cautiously, as it is highly affected by the two very high GDP numbers seen in the last two quarters, 4Q21 and 1Q22.  

He said the 2Q22 GDP would correspond to a growth rate of between 4.5% and 5% YoY, while projecting that quarter-on-quarter (QoQ) GDP numbers to be negative.

“We expect the negative impact from the contraction of inventories to affect the QoQ GDP figure.  

“This contraction comes from the combined effect of a huge accumulation of inventories in the previous quarters and of a clear stagnation phase in the manufacturing sector,” he told TMR.

He noted that progressively in 3Q and 4Q, the probability of a quarterly contraction of the economy is increasing because of the deterioration in the outlook of the major international economies.  

He said this will result in lower growth for 2022 overall, more likely in the range of 4% to 4.5%.  

“In terms of actual growth this is a high number but it reflects our more pessimistic reading of the scenario,” he added.

Commenting further, he said there are clear signs of slowdown or even stagnation in the manufacturing sector, mainly due to the effects of the Chinese lockdown which has passed into a stagnation phase.  

He expects the sector to experience a recession phase, factoring in the international weakness.

In addition to all this, he pointed out that there are also local issues such as the foreign workers ban which has been resolved but will take some time to recover.  

He said this also includes the supply-side restrictions on food which are easing but will still affect 2Q numbers.  

“Interest rate hikes are also designed to restrict demand so they may have an effect as well. The possibility of an election is also a minor factor.  

“There may be some effect from Employees’ Provident Fund withdrawals but a large part of this will be used to rebalance debt and pay off credit cards so we might not see this in extra consumption,” he noted.