The Pensonic  workers at the production line of stand fan at the company plant in Bukit Minyak, Bukit Mertajam Penang yesterday. - Starpic Mustafa Ahmad (17/09/2015).

Malaysia: On a strong recovery path

PETALING JAYA: The economy remains on a robust recovery path, but the pace of growth enjoyed over the last two quarters could slow going forward as external demand weakens from policy response but partly offset by the strong pipeline of investments.

The Statistics Department yesterday said the industrial production index (IPI) in September 2022 increased by 10.8%, driven by the mining and manufacturing sectors pointing to strong external and domestic demand.

The unemployment rate, meanwhile, declined to 3.7% in the third quarter of 2022 (3Q22), the lowest since the Covid-19 pandemic.

The IPI figure for the month indicated gross domestic product (GDP) for 3Q22 will be a strong growth number and above the 8.9% growth seen in 2Q22, thus taking the annual growth rate to 6.5% to 7% for 2022.

“The growth for 2022 is already in. We are now in November so we are certainly going to get the expected final growth figure of 6.5% to 7%.

“For next year, the combination of higher government spending and higher interest rates as well as the expected global downturn will cause a slowdown,” economist Geoffrey Williams told StarBiz.

MIDF Research noted that while the IPI maintained a double-digit growth for the fourth consecutive month, the increase was at a relatively slower pace as compared to August (13.6%), underpinned by moderate growth in the manufacturing (10.4%) and electricity (4.1%) sectors.


The mining sector (15%) posted stronger growth, as crude oil production (7.2%) and liquified natural gas (21%) saw higher output.

“We maintain our IPI growth forecast for 2022 at 6%.

“Although growing exports and domestic consumption will be positive for the IPI outlook, we keep our projection for 2022 IPI growth unchanged at 6% in view of uncertainties from external developments,” said MIDF Research in a report yesterday.

That said, Bank Negara in its Monetary Policy Committee meeting stated that strong domestic demand will be a key driver of growth going forward.

Fuelling the economic vitality will be investment and the Malaysian Investment Development Authority (Mida) is optimistic total approved investments will hit at least RM200bil this year, and equivalent to pre-pandemic levels.

Mida chief executive officer Datuk Wira Arham Abdul Rahman said Mida expects the same results next year despite a potential global economic slowdown.

“This is due to the projects that we currently have in the pipeline, which have been submitted to us. Some of those projects will be approved this year while some will be approved in 2023. Additionally, we also have a number of projects that we received from our offices globally.

“So with the number of projects that we have, I am confident that we can achieve our investment target for 2023,” he said during a press conference in the panel discussion titled “Shifting the Paradigm: Enhancing DDI for Sustainable Economic Growth” yesterday.

Arham added domestic direct investment (DDI) and foreign direct investment (FDI) made up 60:40 of Malaysia’s yearly approved investments, on average.

He noted that 2021 was a record year with about RM309.4bil of approved investments, mainly from the electrical and electronic (E&E) sector and semiconductor space.

The amount of approved investments in 2021 was the highest throughout Malaysia’s history.

“However, we must bear in mind that the chip sector is cyclical in nature.

“Last year, we approved about RM30bil worth of investments from Intel and RM10bil from Infineon.

“It will be another five to six years before we can see that kind of investment amount from these firms again,” he stated.

Nevertheless, investments from the aforementioned sectors will continue to make up the largest contribution to the total investment this year.

For the first half of 2022, out of the RM123.3bil of investments that were approved, RM52bil were projects related to data centres. Arham added data centres, E&E and semiconductor sectors will continue to be the biggest contributors to the total investment this year. MIDA also called for DDI to be increased in order to sustain the country’s economic growth.

“We must understand that FDI is only one part of the equation, and that a strong domestic industry and ecosystem are also important. FDI and DDI complement one another. They arise from the same market conditions: a competitive, equitable, stable business and regulatory climate. Strong domestic demand results in more DDI and a healthy DDI is essential for a successful FDI,” said Arham.

The investments partly helped total employment in September hit a record high of 16.05 million driven by increase employment in the services, manufacturing and construction sectors.

“This fully offset the persistent declining employment in the agriculture and mining & quarrying sectors. With that, the employment-to-population ratio, which indicates the ability of an economy to create employment, continued to surpass pre-pandemic high level of 66.7% for the fifth succeeding month at 67.2% (Aug: 67.1%),” said UOB Research in a report yesterday.

It however warned the recovery of the labour market has hit a soft patch in the recent months and would require the government’s continued support to further solidify the ongoing recovery.

“It is important to watch for any additional job-related initiatives that will be introduced when the new government re-tables a national budget for 2023 after the 15th general election is over. We maintain our unemployment rate projections at 3.5% by the end of 2022 and 3.2% by the end of 2023 for now,” said UOB Research.

Williams told StarBiz the moderating growth of the IPI reflects that the economic recovery is running out of steam as businesses face higher borrowing costs.

“The economy is in a very unstable state due to the economic policies of the current government and the effects of the economic policies of the previous government. Hence, although the economy recovered in 2021 it is now growing at unsustainable rates in 2022 and this brought in inflation and higher interest rates,” he said.

Geoffery added that while the unemployment rate has fallen, it is not a reliable indicator for economic performance as anyone who has worked for even an hour in the previous week is considered to be employed.

“The underemployment rate, measuring people employed but on short time or low-paid jobs below their qualifications, remains high,” he said.