KUALA LUMPUR, Aug 12 — Malaysia’s gross domestic product (GDP) rose by 8.9 per cent in the second quarter of 2022 compared to the previous quarter, Chief Statistician Datuk Seri Mohd Uzir Mahidi announced today.
According to Uzir, the GDP increased from 5.0 per cent in the last quarter, due to improved domestic demand and labour conditions, in addition to continued resilience to external demands, as the country transitions towards endemicity.
Unemployment claims had also fallen significantly, Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus said in the joint press conference at Sasana Kijang here.
However, Shamsiah said that improvements in some segments continued to lag behind others, and that 20 per cent of the economy still remains below pre-pandemic levels, pointing to the construction sector as an example, due to labour shortage and higher input prices.
“On the supply side, the services and manufacturing sectors continued to drive growth. The services sector expanded strongly, supported by higher consumer spending as the country transitioned to endemicity, reopening of Malaysia’s borders and the additional support from policy measures.
“The manufacturing sector was supported by the continued strong demand for semiconductors, and consumer-related products such as motor vehicles. The agriculture sector contracted, as production of livestock and other agriculture was affected by rising input costs particularly for animal feed and fertiliser, and labour shortages,” Mohd Uzir said.
He added that the mining sector remained in contraction, as output was weighed down by closures of several oil and gas facilities for maintenance.
On the demand side, he said that higher growth was driven by further improvement in domestic demand and that private consumption grew at a faster pace, spearheaded primarily by the recovery in the labour market and support from policy measures. In particular, spending on necessities and selected discretionary items such as restaurants and hotels, recreational services and household furnishings expanded further in the said quarter.
“Private investment was supported by improvement in structures particularly in the non-residential segment, and continued growth in M&E (mechanical and electrical) investment. Meanwhile, public investment rebounded, attributable mainly to higher capital expenditure by public corporations in oil and gas, and telecommunication sectors,” he said.
Mohd Uzir added that public consumption expanded at a moderate pace, due to lower supplies and services spending and net exports contracted as growth of imports outpaced that of exports, amid stronger domestic demand and firms’ mitigation measures to build up inventory buffers.
“The current account of the balance of payments registered a higher surplus of RM4.4 billion, or 1.0 per cent of GDP. This was supported mainly by the smaller primary income deficit, driven by higher income generated by Malaysian firms investing abroad. In addition, the services deficit narrowed, supported mainly by higher travel receipts amid reopening of international borders,” he said.
Mohd Uzir added that in the financial account, net foreign direct investments (FDIs) recorded an inflow of RM17.3 billion during the quarter and these investments were channelled primarily into the manufacturing sector and financial services sub-sector.
Nor Shamsiah said that the Malaysian economy is projected to continue to recover in the second half of 2022, despite at a more moderate pace amid global headwinds. However, she said that given the strength in the first half of 2022 which grew by 6.9 per cent, BNM expects growth for the year to be at the upper end of the range of between 5.3 per cent and 6.3 per cent, even after taking into account the slower global growth.
She added that Malaysia’s economic growth for the rest of the year and 2023 would be driven mainly by private sector expenditure, particularly as tourism sectors normalise towards pre-Covid levels.
“Investment activity stands to benefit from the realisation of multiyear projects such as the MyDigital, East Coast Rail Link (ECRL) and the Light Rail Transit Line 3 (LRT3). Supply chains are also expected to ease as receding Covid-related disruptions and slowing global trade alleviate some of the pressures going forward. These would offset the expected moderation in global growth,” she said.
Nor Shamsiah concurred that the recovery however is still uneven, and that this is most severe in the construction sector.
“Tourism-related industries have only recently begun to recover. In the labour market, the recovery amongst vulnerable groups, particularly the youth and elderly along with low-skilled workers, is slower relative to other groups in the labour market. It is for these reasons, while macro policies are recalibrated as the overall economy recovers, targeted policies would continue to support these segments of society,” she explained.
She said that global growth would also be weaker than earlier forecast, due to higher inflation, more severe impact of lockdowns in China and tighter monetary policy.
“Being a small and open economy, this slowdown would have an impact on our exports. Nevertheless, Malaysia’s diversified exports structure across products and markets will help us face potential shocks in demand for any specific products or from any specific countries,” she added.
Nor Shamsiah, who is BNM’s ninth governor, also cautioned that Malaysia’s growth outlook continues to face challenges, as on the global front, a more severe deceleration in global growth is a key downside risk factor. This she said. could stem from multiple factors, including over tightening of monetary policy in the United States, energy crisis in Europe and renewed lockdowns in China.
She said that the supply chain disruptions could also worsen, with further increase in global commodity prices, if geopolitical conflict escalates.
“Supply conditions could be further exacerbated by more acute labour shortages or adverse weather conditions. Stronger cost and price pressures could dampen household spending and investment activity, weighing on the economic recovery. These outweigh upside risks from a stronger labour market, rapid improvement in tourism, and any additional domestic policy measures,” she added.
Nor Shamsiah said that for the remainder of this year, headline inflation is expected to trend higher in some months, due in part, to the base effect from the discount on electricity prices implemented in the third quarter of 2021.
“Core inflation is therefore projected to be closer to the upper end of the forecast range of 2.0 per cent to 3.0 per cent range in 2022, as demand continues to improve amid the high-cost environment,” she added.