PETALING JAYA: Malaysia may register a 7% gross domestic product (GDP) growth in 2022 on the back of robust economic recovery after a poor 2021 growth of 3.1% due to the Delta Covid wave, according to Standard Chartered Global Research.
“Retail sales rose 37% year-on-year (y-o-y) in June-August. Private consumption accounted for 113% of Q2 GDP growth. Revenge spending, early pension fund withdrawals, wages hikes amid a recovering labour market and vehicle sales tax exemption were the main drivers,” it said in a report today.
It added that loan growth since August has risen more than 6% y-o-y, driven by loans to the manufacturing sector, despite weakness in construction and real estate activity. The latter may be a function of labour supply which is expected to improve in the quarters ahead.
Industrial production data points to strong external and domestic demand. Export-oriented industrial activity grew 12% y-o-y in August, led by electronic production despite weaker regional electronics activity.
Meanwhile, domestic-oriented sectors rose 25% y-o-y in August, partly boosted by low base effects.
“That said, longer-term there may still be room for domestic industrial production to play catch up,” it added.
External demand for Malaysia’s exports remains strong. September exports rose 30% y-o-y. On a volume basis, exports rose 10% y-o-y. Malaysia’s external demand remains strong for both electronics and commodities, though it expects electronics demand to waver in the months ahead.
“Looking ahead, a weak global growth outlook may result in external demand moderating for Malaysia’s external-oriented sectors. Nevertheless, Malaysia may enjoy some tailwinds from the reopening of international borders,” it said.
As of July 2022, tourist arrivals are back to 50% of pre-Covid levels, with considerable room to recover. Meanwhile, domestic demand may continue to support growth in the quarters ahead.
In addition, it said inflation passthrough pressures appear to have eased somewhat and businesses appear to have passed on some of their cost increases.
Both manufacturing and service wages have risen as the economy recovers.
“But services wages paint a different picture when viewed against a longer history. They are only recovering and are still running below medium-term trend growth,” it added.
Hence, StanChart sees room for Bank Negara Malaysia (BNM) to extend its rate-hiking cycle to at least reverse the Covid-led cuts, which would return the policy rate to 3%.
It projected that BNM will hike the overnight policy rate (OPR) again in January by 25 basis points (bps) to 3.25%. It also projected a May hike call, premised on potential subsidy changes in H2’23, which may require another rate hike especially if domestic demand remains strong.
Previously, it expected a pause after November’s 25bps hike until a final 25bps hike in Q3’23, with a terminal rate of 3%.
“The latest November monetary policy statement is supportive of our January rate hike call, in our view,” it said.
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