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Emerging economies in Southeast Asia are tackling inflation way better than most developed economies, as showcased by Malaysia recovery trajectory. Malaysian economy contracted 5.6% in 2020, rebounding to 3.1% growth in 2021, and has now posted second-quarter GDP growth of 8.9%.
The expansion in the Malaysian economy reflects the recovery from the Covid-19 pandemic, even as global economies are struggling with a slowdown and a potential recession. Malaysia posted a GDP growth of 5% in the first quarter of 2022, making it one of the fastest-growing economies in Southeast Asia.
What’s aiding Malaysia recovery?
Malaysia’s central bank governor Nor Shamsiah Yunus in a press conference said the growth in the economy is being supported by the recovery in the labour market, rising domestic demand, and upbeat export figures for electrical and electronic items.
The 8.9% growth in the second quarter came as a surprise as economists polled by Reuters were expecting a median of 6.7% growth, while a Bloomberg poll had pegged the figure at 5%. The central bank said the economy expanded as much as 16.5% in the month of June alone, aiding the overall recovery during the second quarter.
Bank Negara Malaysia is targeting a growth of between 5.3% and 6.3% for the full year, backed by global demand and higher expenditure in the private sector. However, the Malaysian government has set a growth target of 5.5% to 6.5%.
Separately, the International Monetary Fund recently slashed its GDP growth forecast for Malaysia to 5.1% for 2022, from its previous estimate of 5.6%, citing weakness in global economies and rising geopolitical worries.
The central bank said that during the second quarter service and manufacturing sectors performed well. “We expect services to be an increasing driver of growth this year, led by increased consumer and tourism spending. But economic momentum is poised to cool later over H2, partially due to fading catch-up growth in discretionary services but also weaker global trade,” said Sian Fenner, Lead Economist at Oxford Economics.
Earlier this week Malaysia’s Finance Minister Zafrul Aziz said that the country’s economy will accelerate in the third quarter due to pent-up demand, but the outlook for 2023 seems cloudy due to a slowdown in the global economy.
On the other hand, DBS has widened its growth forecast for Malaysia to 7.2% from its previous estimate of 5.5%. “Domestic demand tailwinds from economic opening, pent-up demand, improving disposable incomes, investment activity, coupled with favourable base effects in 3Q22 due to last year’s Full Movement Control Order, are all positive drivers. This would negate rising domestic costs and global economic headwinds,” wrote DBS in a recent note.
Meanwhile, inflation rose 3.4% in June surpassing the average inflation rate over the past decade of 1.9%, likely arresting Malaysia recovery. The central bank has already made two 25-bps rate hikes, with another 25-bps hike expected during the next monetary policy council meeting.
