Malaysia to keep growing amid potential headwinds from slowdown in major economies
16 May 2022
As its economy grew faster than consensus projection in the first quarter, analysts now expect Malaysia’s gross domestic product to expand more than 5.0 per cent this year.
Even as the strength in the Q1 data was comforting, they cautioned that potential headwinds posed by a slowdown in the major economies were likely to present tougher times for the Malaysian economy.
Malaysia reported Q1 gross domestic product (GDP) growth of 5.0 per cent year-on-year (yoy).
OCBC Bank economist Wellian Wiranto said this came ahead of the 4.0 per cent and the 3.0 per cent that the market and the bank had expected respectively.
While exports helped, the key factor in the outperformance was the recovery in the domestic consumption, bolstered by labour market normalisation, he added.
Wellian expects Malaysia’s full-year GDP growth at 5.7 per cent, an increase from OCBC’s earlier projection of 5.4 per cent.
“Indeed, even as a recovery in growth momentum is something we usually pine for, especially after the challenging pandemic period, we should nonetheless be cognisant of the inherent risks when growth rates start to pick up quickly.
“Here, apart from the risk of inflation that has been much talked about, the potential for current account dip presents another area to look out for,” he said.
In Q1, Malaysia’s current account balance dipped to 0.7 per cent of GDP compared to 3.6 per cent in Q4 last year.
“This marks the thinnest current account buffer since Q2 2016 and comes at a time when investors would pay greater attention to the metric. While Malaysia’s current account should stay in the surplus territory, the fact that the cushion has gotten thinner could translate to more susceptibility to more volatile capital flows,” Wellian said.
UOB Group, meanwhile, said the local economy was on track for a 5.5 per cent full-year growth, barring any unexpected turn in the global outlook.
This would be higher than the long-term 20-year average of 4.5 per cent and the official estimated potential growth of 3.0-4.0 per cent.
UOB seniuor economist Julia Goh and economist Loke Siew Ting said Malaysia’s GDP growth of 5.0 per cent in Q1 was much higher than its estimate of 4.5 per cent and Bloomberg market consensus of 4.0 per cent.
“Despite expectations of slower global growth for this year, we think there are sufficient domestic growth drivers aided by reopening of the economy and transition to endemicity.
“High national vaccination rates against Covid-19 and the continuation of targeted government policy support including cash aids, special Employees Provident Fund (EPF) withdrawal facility, and various subsidies will also help to underpin domestic growth momentum for the remaining quarters of the year,” theyw rote in a report.
Meanwhile, Goh and Loke expect Bank Negara Malaysia to next raise 25 basis points (bps) in overnight policy rate (OPR) hike during Q3 2022, after surprisingly increased the rate by 25bps to 2.0 per cent last Wednesday.
“Our expectation takes cue from Bank Negara’s objective to reduce the degree of monetary accommodation amid firmer domestic growth and that it will be done in a measured and gradual manner, ensuring that monetary support remains accommodative. This implies a total 50bps hike this year to bring the OPR to 2.25 per cent by year-end,” they said.