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Malaysia’s GDP Back To Above Pre-Pandemic Levels

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Standard Chartered Global Research team has raised its 2022 GDP growth forecast for Malaysia to 7% in its latest report following a stronger-than-expected Q1 GDP. With Bank Negara Malaysia expected to continue its process of normalising monetary policy, the team is also expecting more hikes to the overnight policy rate for the rest of the year.

Q1 GDP expanded 5.0% y/y, taking GDP 3.3% above the pre-COVID (Q4-2019) level on a seasonally adjusted (SA) basis. The growth recovery was broad-based. By expenditure, all components expanded q/q; as of Q1, only investment and trade in services remained below pre-pandemic levels.

By industry, 18 of 21 sectors expanded q/q, and we estimate that 74% of the economy is above pre-COVID levels. We raise our 2022 GDP growth forecast to 7.0% from 6.2% given stronger-than-expected Q1 GDP growth; we lower our 2023 forecast to 4.2% (from 4.5%) due to higher base effects.

The labour market has also continued to recover, with strong employment growth and tighter conditions translating to higher wage growth. The economic and labour-market recovery justifies this week’s move by Bank Negara Malaysia (BNM) to begin the process of normalising monetary policy from emergency settings; we expect this process to continue.

While inflationary pressure is not substantial (we note that low inflation is due to government measures), the current low policy rate is not seen as commensurate with the economic recovery.

BNM may also want to take advantage of robust growth to build policy space. Policy guidance suggests that more rate hikes are likely. As a result, we maintain our view of 75bps of hikes in 2022; we expect two more hikes, in July and September (we drop our Q4 hike expectation given this week’s move), taking the OPR to 2.5% by end-2022. We then expect a pause.

Source: Standard Chartered Malaysia

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