Strong growth figures in 3Q
MALAYSIA’S third quarter (3Q) gross domestic product (GDP) performance came in very strongly, beating market consensus of 11.7% and our expectation of 12.2% to expand by 14.2%.
This is the strongest quarterly GDP performance reported since the 2Q21, where the economy grew by 15.9%.
Although on an annual growth basis, the economy grew strongly on a quarter-on-quarter basis, we saw a loss of momentum.
Malaysia’s economy grew by 1.9% quarter-on-quarter (q-o-q), slower than 2Q22’s growth of 3.5% q-o-q.
With such a strong third quarter performance, the first three quarters average would be 9.3%.
This is well above our full year growth projection of 7.5%, and Bank Negara’s forecast of 5.3% to 6.3% for 2022.
The strong growth was supported by private consumption which rose by 18.3% (2Q22: 5.5%).
The drivers to private consumption were the continuous improvement in the labour market where the unemployment rate eased further from 3.9% in the 2Q22 to 3.7% in 3Q22.
Besides, wages grew stronger. Using the manufacturing wage growth as the basis, they grew by 3% (2Q22: 2.2%).
The spending indicators were strong too. The retail trade grew by 34% (2Q22: 29.5%).
Purchases via credit cards and e-payments grew by 42.5% (2Q22: 33.4%) and 91.6% (2Q22: 72.4%) respectively.
The higher spending in 3Q22 was supported by the government’s efforts to stabilise prices of key items, including selected food items and petrol.
The disbursement of the Bantuan Keluarga Malaysia (third phase) also supported spending – a total of Rm1.7bil was disbursed to eligible recipients.
Loan growth in the 3Q22 for both households and businesses was strong, rising by 6.4% (2Q22: 5.3%) and 6.1% (2Q22: 5.4%) respectively.
The tourism sector continued to improve.
The sector is benefiting from the easing of Covid-19 measures.
It is reflected by tourist arrivals of 1.1 million in July and the rising trend that started in March.
At the same time, Malaysia’s exports had helped to power the strong growth.
Exports grew robustly by 23.9% year-on-year (y-o-y) in 3Q22, which is higher than the 10.4% in 2Q22.
The main driver for exports were electrical and electronics (E&E) products which grew by 41.5% (2Q22: 38%), machinery equipment and parts by 42.7% (2Q22: 23.5%), and petroleum products by 114.6% (2Q22: 60.4%).
We expect exports to continue to support growth for the remainder of the year.
Semiconductor sales
Global semiconductor sales is expected to grow by 14% in 2022.
Gross fixed capital formation (GFCF) also improved to 13.1% (2Q22: 5.8%).
The private sector, which contributed 80.3% to GFCF edged up to 13.2% in 3Q22 (2Q22: 6.3%).
This coincided with the continuous foreign direct investment inflow particularly in the E&erelated activities.
From the industry side, the main impetus was the services sector, that grew by 16.7% (2Q22: 12%).
This was due to the economy moving into the endemic phase, Hari Raya Haji in July and school holiday in September whereby more people were travelling.
Growth in this sector was supported by the wholesale and retail trade sub-sector which accelerated at 24.4% (2Q22: 17.3%) following the higher growth in the wholesale, retail and motor vehicles segments.
Transportation and storage sub-sector maintained a strong growth of 41.4% (2Q22: 35.8%) mainly attributed to the improvement in support activities for transportation and the land transport segments.
Manufacturing sector
The manufacturing sector rose to 13.2% (2Q22: 2.4%). The growth in the sector was backed by E&E and optical products which increased by 17.3% (2Q22: 15.5%).
This was in line with the robust growth in industrial production in 3Q22, up by 12.3% (2Q22: 6.9%).
The growth was supported by both export-oriented and domestic-oriented sector, that grew by 10.7% and 29% between July and August.
The sector that led to the growth was manufacturing.
The key sub-sectors include wood products, furniture and paper products (22.2%), non-metallic mineral and basic metal (18.8%), and E&E products (18.2%).
Loan growth in 3Q22 for both households and businesses was strong.
Agriculture sector
The agriculture sector rebounded by 1.2% (2Q22: down 2.4%), driven by the oil palm sub-sector, as foreign workers are slowly returning to the country.
Several key players in the oil palm sector were using machines to reduce their reliance of foreign workers.
The mining sector grew by 9.2% (2Q22: down 0.5%), supported by the higher production in the natural gas segment which increased by 13.6% (2Q22: 0.4%), mainly due to increased demand from the Far East including Japan, China and South Korea.
The gradual improvement in the construction and agriculture sectors, which had been lagging for the past several quarters, is expected to be supportive of the economy.
Nonetheless, the oil palm plantation sector is still short of 54,630 of the 437,212 workers required, according to the Malaysian Palm Oil Board.
In addition, the multi-tiered levy proposed under Budget 2023 could dampen recovery in the sector.
Geopolitical conflicts
The downside risks to growth remain, especially from the external front. This include tighter financial conditions in major economies as central banks continue to tighten monetary policy, China’s response to the Covid-19 outbreak which will worsen global supply chains, and the escalation of geopolitical conflicts.
While the 3Q22 number is strong, headwinds are expected to kick in from 4Q22.
We are witnessing some signs of stress in the manufacturing sector.
With rising cost of living as well as cost of doing business, the likelihood of the 4Q GDP slowing down remains high. The headwinds are expected to remain as we go into 2023.
Hence, while we are expecting an overall growth for 2022 to be at 7.5%, with an upside of 8.5%. There is a likelihood of a slower growth of around 4.5% next year.
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