Malaysia likely saw stronger GDP growth in Q2 after borders reopened: economists

MALAYSIA’S economy is likely to have expanded at a faster pace in the second quarter of this year, with expectations that gross domestic product (GDP) growth could exceed the 5 per cent in the first three months of 2022.

This is largely due to the country reopening its borders in April and a low-base effect, said economists ahead of the release of the official Q2 GDP data this Friday (Aug 12).

According to a Bloomberg poll, GDP growth for the April to June quarter will be 5 per cent year-on-year. A separate poll conducted by Reuters forecasts South-east Asia’s third-largest economy to expand by 6.7 per cent, which would be the fastest growth since the same quarter in 2021.

The Reuters survey of 18 economists, conducted from Aug 3 to Aug 9, noted that the second quarter had a strong rebound in private consumption and buoyant exports, although they cautioned that a global economic slowdown posed significant risks to the outlook for the rest of the year.

Nazmi Idrus, the head of economics from CGS-CIMB Securities, expects real GDP to expand by 8.5 per cent year-on-year in the second quarter, driven by the transition to dealing with Covid-19 as endemic, strong fiscal support and a low base effect.

“Recent data on the Malaysian economy, which covers close to 60 per cent of GDP, suggests an expansion of 8.5 per cent year-on-year in 2Q2022. The solid growth would like to continue into the third quarter as the base effects linger, offsetting the dissipation of pent-up demand,” he said in a research note on Wednesday.

Malaysia’s distributive trade index – a measure of sales performance – expanded by 18.4 per cent year-on-year in the April-June period and 9.5 per cent quarter-on-quarter, mainly driven by car sales and retail spending.

Manufacturing index surged 6.9 per cent in the second quarter, supported by robust demand from transport equipment, construction materials as well as food and beverages industries. The electrical and electronics industry continued to grow stronger by 15.3 per cent, following robust growth of 16.5 per cent in the first 3 months of 2022.

Julia Goh, a senior economist at UOB Global Economic and Market Research, agreed that the border reopening on Apr 1, has given a lift to Malaysia’s economy, especially for service-related industries and export activities.

“Growth is likely to be sustained by reopening drivers in Malaysia and the region. We have seen improved cross border investments from multiple sources in line with higher trade performance,” she told The Business Times.

The firm forecasts Malaysia to achieve GDP growth of 5.8 per cent in 2Q2022, but Goh takes a “cautiously positive” stance on the country’s growth in the next 6 months due to multiple external headwinds.

Carmelo Ferlito, the chief executive officer at the Centre for Market Education, noted that there are some underlying risks and the growth momentum will not be sustainable if the “micro foundations are being ignored”.

“(The economy) growing (due) to private consumption and government spending means that the recovery is resting on fragile and bad pillars: private and public debt and inflation. This makes the recovery unstable,” he said.

He noted that what had been lacking were private investments, which are the true driver of sustainable growth if paired with a growth in savings.

In a separate business sentiment survey released by the Associated Chinese Chambers of Commerce and Industry of Malaysia on Aug 4, it showed that 70.4 per cent out of 860 respondents were neutral on Malaysia’s economic outlook in June-December 2022.

Only 25 per cent are positive on Malaysia’s economic growth in the second half of 2022. The majority are concerned about stagflation, rising recession risks in the United States and Europe, faster global monetary tightening, and domestic issues such as labour shortage and rising business costs.

Bank Negara Malaysia’s forecast for the full-year growth is 5.3 per cent to 6.3 per cent, which will then slow to 4.6 per cent in 2023. The central bank is due to announce the Q2 data at a press conference this Friday.