Opus Blog - Malaysia 2Q22 GDP Review Reaping the Fruits of a Lagging Economic Recovery
On: August 15, 2022 In: Blog, Fixed Income, Knowledge Centre

By Opus Asset Management Sdn Bhd

  • Malaysian 1Q22 Gross Domestic Product (GDP) rose 5.0% YoY (+3.6% QoQ). Malaysia’s GDP figure of +5.0% YoY in 1Q22 resoundingly exceeded the Bloomberg economists’ median consensus of +2.3%, while the only “slow” month in Jan’22 (+4.3% YoY) was reflective of the flood damage suffered towards end-Dec’21.
  • Continued GDP growth in 1Q22 due to sustained recovery in private consumption and services sector. The manufacturing sector’s contribution to GDP declined slightly (1Q22: +6.6% YoY; 4Q21: +9.1%YoY), ostensibly due to continued supply chain disruptions and a higher commodity price environment from the Russia-Ukraine conflict. However, the lifting of lockdown measures allowed private consumption’s GDP contribution to rebound from better consumer sentiment (1Q22: +5.5% YoY; 4Q21: +3.7% YoY), as well as the services sector which contributed +6.5% YoY in 1Q22 (4Q21: +3.2%).
  • GDP growth matched by slow, but steady improvements in Malaysia’s labour market. Malaysia’s unemployment rate declined gradually in lockstep with the economic recovery (1Q22: 4.1%; 4Q21: 4.3%) which is expected to continue in view of the further lifting of pandemic restrictions by May 15, although youth unemployment remains a structural concern (Mar’22: 13.1%; pre-pandemic low Jan’20: 10%).

OpusAM’s opinion:

  • Slight boost for domestic private consumption from EPF withdrawals and minimum wage hike for 2Q22 GDP. Moving forward, we see support for continued GDP growth in 2Q22 with catalysts from the recent RM10k EPF withdrawal and minimum wage hike (implemented May 1) which should provide a boost to the private consumption power of Malaysian citizens.
  • Stronger than expected growth numbers a clear path to rate normalization. In the context of Bank Negara Malaysia’s preemptive 25bps rate hike post May 10-11 meeting, the stronger-than-expected 1Q22 GDP reading reinforces our view that BNM may continue on its normalization path with another 1-2 rate hikes in 2H22. However, we remain aware that there may be global headwinds to Malaysia’s continued growth arising from but not limited to COVID-induced slowdowns in China’s economy, larger quantum US Federal Reserve (Fed) rate hikes and the ongoing Russia-Ukraine conflict.

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