Malaysia: GDP momentum to remain positive this year

PETALING JAYA: Malaysia’s economy is projected to grow at 5.7% to 6.5% this year, with at least another 25 basis point (bps) hike in the overnight policy rate (OPR) amid higher inflationary pressures.

The projection by economists of gross domestic product (GDP) growth is higher than Bank Negara’s forecast growth range of 5.3% to 6.3% for the year despite headwinds.

AmBank Group chief economist Anthony Dass revised the GDP growth projection upwards for this year, adding that the base case GDP growth target for 2022 is now 6.4%, up from 5.6% previously.

“Despite some headwinds, we expect the overall momentum to remain positive in 2022.

“This is reflected in the healthy loan growth of 5.6% year-on-year (y-o-y) as at end-June 2022, where business loans grew by 5.3% y-o-y and consumer loans by 5.9% y-o-y.

“The leading indicator also suggested the potential outlook remains favourable, reading at 111.2 (May’s reading).

“On that note, we have baked in another 25 bps OPR rate hike in September with a probability of 40% for another 25 bps in November, supported by healthy potential incoming data that reflects a pick-up in demand pressures,” said Dass, who is also a member of the Economic Action Council Secretariat.

The second quarter (2Q22) GDP grew better than expected, up 8.9% y-o-y, bringing the average first half of the year (1H22) GDP to 6.9% y-o-y.

After growing by 5% year on year in the first quarter, 2Q22 growth exceeded the 7% median forecast of Bloomberg polled analysts.

On a quarter-on-quarter (q-o-q) basis, the economy grew by 1.7% in 2Q22 versus a contraction of 3.0% q-o-q in 1Q22.

2Q22’s growth rate is the best performance in this region. Singapore grew by 4.4%, Indonesia by 5.4%, Vietnam by 7.7%, and the Philippines by 7.4% in the same quarter.

Following the strong 1H22 performance, Dass now expects 2H22 GDP to also perform well, part of which would be supported by the low base in 2H21.

“Besides the low base, we foresee the economy continuing to benefit from strong export earnings backed by firm commodity prices, a healthy global semiconductor environment, resource-based exports and foreign direct investment inflows,” said Dass.

“But the upside to the economy is being contained by shortages of foreign workers at the entry level and talents. Businesses are struggling to cope with existing orders.

“To add fuel to the fire, they are also hurt by supply chain disruptions and high costs. As a result, we are losing new orders to neighbours like Vietnam and Indonesia.

He noted that “we can expect some degree of knock-on impact from the ongoing geopolitical risks and uncertainties on the external front,” with a growing risk of a slower global GDP and trade in 2022.