UOB: Q3’22 GDP growth likely strongest since Q2’21

Projection of 13.6% is on the upside of bank’s initial forecast of 9%, making Malaysia the second best performer in the region after Vietnam

Malaysia’s real gross domestic product (GDP) is expected to surge 13.6% year-on-year (y-o-y) in the third quarter of 2022 (Q3’22) on the back of robust growth across July–September economic indicators, with an average 9.1% growth in the first three quarters of this year, estimated UOB Research.

“It is far beyond our existing 2022 full-year growth forecast of 6.5%, demanding a revision after obtaining actual numbers tomorrow,” it said in a report yesterday.

The Q3’22 projection is on the upside of its preliminary forecast of 9% as well as Bloomberg’s 12.4%. It could also make Malaysia the second best performer in the region in Q3’22, after Vietnam.

“All sectors are seen posting positive annual growth last quarter – led by services, manufacturing and construction sectors. On the aggregate demand side, domestic demand is projected to maintain its strong growth momentum and cushion the drag from external demand amid modest stock replenishment activities in Q3’22.”

UOB said it signifies a solid economic recovery pace and justified Bank Negara Malaysia’s fourth back-to-back interest rate hike.

On the aggregate demand side, domestic demand is projected to maintain its strong growth momentum and cushion the drag from external demand amid modest stock replenishment activities in Q3’22. Private consumption is anticipated to remain robust with a 20% y-o-y gain (Q2’22: 18.3%), largely thanks to the continued government subsidies, an upward adjustment in the national monthly minimum wages starting from May 2022, and a further improvement in the labour market. Private investment is expected to pick up further by 9% y-o-y (Q2’22: 6.3%), driven by higher capital spending in the services and manufacturing sectors amid continued adoption of automation and digitalization to resolve the shortage of foreign workers. Government expenditure is set to be lifted by the persistent huge subsidy and social assistance bills as well as rising public investment in the oil & gas and telecommunication sectors.

However, it will maintain growth outlook for next year with a moderate real GDP expansion of 4% given a more challenging confluence of external factors including rising geopolitical conflicts, global inflation pressures, tightening of central bank policy and global liquidity, and volatile financial markets.

“China’s Covid-19 zero policy and global tech downcycle has further heightened the downside risks to both global and domestic growth prospects going into 2023. A higher statistical base effect this year will also be part of the cause of a lower GDP growth expectation for 2023, coupled with the possibility of persistent monetary policy tightening by Bank Negara Malaysia in early 2023,” UOB said.