THE Malaysian economy registered a stronger growth of 8.9% in 2Q 2022 (1Q 2022: 5.0%).
While the gross domestic product (GDP) was lifted to some extent by the low base from the full movement control order (FMCO) in June 2021, growth in April and May 2022 was particularly robust, according to Bank Negara Malaysia (BNM).
“Domestic demand continued to strengthen, underpinned by the steady recovery in labour market conditions and ongoing policy support,” the central bank pointed out when releasing Malaysia’s 2Q 2022 GDP figure today. “The higher growth was also reflective of normalising economic activity as the country moved towards endemicity and re-opened international borders.”
BNM said exports during the 2Q 2022 period remained supported by strong demand for electrical and electronic (E&E) products.
By sector, the services and manufacturing sectors continued to drive growth. On a quarter-on-quarter seasonally-adjusted basis, the economy rose by 3.5% (1Q 2022: 3.8%).
During the quarter under review, headline and core inflation increased to 2.8% and 2.5% respectively (1Q 2022: 2.2% and 1.7% respectively). The higher core inflation reflected an improvement in demand conditions amid the high-cost environment with price increases mainly driven by food away from home and other food items.
Exchange rate developments
During 2Q 2022, the ringgit depreciated by 4.6% against the greenback (YTD until Aug 10: -6.3%) which is broadly in line with the movement of regional currencies (2Q 2022: -4.7%; YTD: -5.8%).
This largely reflected the continued strengthening of the US dollar following aggressive US monetary policy tightening, increased investors’ risk aversion due to the weaker global growth outlook and the military conflict in Ukraine.
“Nonetheless, elevated commodity prices and Malaysia’s economic recovery helped to cushion the downward impact from the external developments on the ringgit during the quarter,” noted BNM.
“Going forward, while domestic financial markets will continue to be subjected to episodes of heightened volatility, spill-overs to domestic financial intermediation are expected to remain broadly contained, supported by Malaysia’s healthy external position and strong banking system.”
Financing conditions
According to the central bank, net financing to the private sector grew by 4.9% (1Q 2022: 4.5%) amid higher growth in outstanding loans (5.4%; 1Q 2022: 4.4%).
However, outstanding corporate bond growth moderated (3.4%; 1Q 2022: 4.6%) as growth in bond redemptions continued to outpace that of issuances. Outstanding business loan grew by 5.5% (1Q 2022: 4.3%) following strong expansion in loan disbursements for both working capital and investments.
“For households, outstanding loan growth increased further (5.7%; 1Q 2022: 4.8%) with higher growth recorded across all loan purposes,” revealed the central bank. “Loan disbursements remained robust amid strong loan demand, particularly for the purchase of cars and houses.”
Overall, BNM said loan repayments for both the business and household segments have been encouraging upon the lapse of repayment assistance programmes and the reopening of the economy.
Firm domestic demand
With growth at 6.9% in 1H 2022, the Malaysian economy is projected to expand further for the remainder of the year.
Commenting on the outlook for 2022, BNM’s governor Tan Sri Nor Shamsiah Mohd Yunus said while external demand could face headwinds from slower global growth, the Malaysian economy will continue to be supported by firm domestic demand.
“Growth would also benefit from improving labour market conditions and higher tourist arrivals as well as continued implementation of multi-year investment projects,” she explained. “However, Malaysia’s growth remains susceptible to a weaker-than-expected global growth, further escalation of geopolitical conflicts and worsening supply chain disruptions.”
Headline inflation is projected to trend higher in some months during the remainder of the year due partly to the base effect from the discount on electricity prices implemented in 3Q 2021. Meanwhile, core inflation is expected to average higher in 2022 as demand continues to improve amid the high-cost environment.
“The extent of upside pressures on inflation is expected to remain partly contained by the existing price control measures, fuel subsidies and the continued spare capacity in the economy,” projected the central bank.
“Nevertheless, the inflation outlook continues to be contingent on upside risks stemming from the strength of domestic demand, global price developments, and domestic policy measures.” – Aug 12, 2022
