The economy is expected to grow by 6.4% this year
THE economic trajectory since the start of the Covid-19 pandemic in Malaysia has been anything but smooth. Our economy has suffered as the country went through three shutdowns (albeit with varying levels of severity) in 2020, early 2021 and mid-June 2021.
As a result, Malaysia’s economic growth showed a sharp contraction of 5.5% yoy in 2020, and a slight recovery of 3.1% yoy in 2021.
It was not until April 2022 that Malaysia began to open its international borders with the country’s transition to endemicity. The double-dose vaccination rate had by then almost reached 80% while the threat of an epidemic from Omicron proved to be less serious than expected.
This gave hope that Malaysia would achieve its full performance potential to reach its pre-Covid level.
Nonetheless, the local economy had started to pick up momentum in the first quarter of 2022, pointing to dynamic growth of 5% year-on-year after growing 3.6% in the previous three months. It was also well within our projection range of 5% to 5.2%.
On the supply side, the services sector, which contributed 58.2% to the economy, recorded robust growth of 6.5% year-on-year, led by the transport sub-sector and warehousing, followed by wholesale and retail and food and beverage.
Increase in E&E revenue
Growth in manufacturing and exports was further boosted, mainly thanks to the recovery of electrical and electronic (E&E) products and the surge in palm oil prices also helped to support the local economy.
Meanwhile, private consumption was also on the rise due to the easing of pandemic-related restrictions, while the business climate improved, with private investment posting its first annual growth after two consecutive quarters of decline. decrease.
Yesterday’s release of the Gross Domestic Product (GDP) reading for the second quarter of the year was an interesting event this time around as the economy has fully reopened and we can assess whether the Malaysian economy can return to what it was. she was in the pre-Covid era.
While the consensus is for 6.9% YoY, the actual figure indicates that the local economy in Q2 grew 8.9% YoY, even better than our estimate of 8.4% YoY. year-on-year, compared to 5% year-on-year in the first quarter.
A key driver of this strong performance is the strength of net exports, which rose 10.4% year-on-year from 8% year-on-year in the first quarter.
It should be noted that gross exports easily reached a 30% annual growth rate year-on-year in the same quarter. It was propelled by the strong performance of E&E products and commodities based products such as petroleum products and palm oil items.
The continued demand for electronic devices to enable working from home has definitely benefited the semiconductor industry globally. Additionally, more and more consumers are shifting their preferences from gasoline-powered vehicles to electrified vehicles in light of greater environmental awareness.
This had led to an increase in demand for automotive chips to the point of a global shortage.
In addition, the humanitarianly devastating war between Ukraine and Russia has also disrupted global commodity markets, including energy-related commodity prices.
Net imports, which measure domestic demand, also benefited Malaysia’s growth, jumping 14% year-on-year in the second quarter. Although some believe that imports have a negative impact on the calculation of GDP, imports also mean that we absorb intermediate goods that will be used later in production and the satisfaction of domestic consumption demand itself.
It is undeniable that we will take the net trade figure by deducting the amount of imports from the amount of exports in the calculation of GDP, but this is only for technical terms.
Basically, imports are a way to stimulate economic growth. On a gross basis, imports of intermediate goods jumped 36.4% year-on-year in the three months to June (Q1: 28.7%) and consumer goods jumped 18.1% (Q1 : 24.3%).
Regarding sectoral achievements, the services sector, which is a major contributor in the calculation of GDP, grew by 12% YoY (Q1: 6.5% YoY) while the manufacturing industry increased by 9.2% year-on-year (first quarter: 6.6%).
The construction sector rebounded 2.4% year-on-year after posting a 6.2% year-on-year contraction in the previous quarter.
On the other hand, extractive industries slightly decreased by 0.5% yoy (first quarter: minus 1.1%) while agriculture fell by 2.4% yoy after a marginal growth of 0.2% in GA in the first quarter of this year.
Manufacturing performance, as reflected by the PMI, rose albeit at a moderate pace as it averaged 50.7 during the quarter.
Amid steady production and new businesses, the sector has been overtaken by further shutdowns in China, global supply chain disruptions that have seen companies grapple with rising input prices and delayed arrivals of inputs, and a shortage of foreign workers. For exchange inquiries, contact: [email protected]
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