Second quarter GDP hits 8.9% as Malaysia heads to endemicity

KUALA LUMPUR – Malaysia’s second quarter GDP posted an 8.9% growth as domestic demand continued to rise, supported by the steady recovery of labour market conditions and sustained policy support.

According to a Bank Negara Malaysia (BNM) statement, the increase in the second quarter GDP growth was also a reflection of a normalising economy as Malaysia heads towards endemicty and reopened international borders.

It said that the robust demand for electrical and electronic (E&E) products continues to underpin exports while the services and manufacturing sectors continue to fuel economic growth.

While the low base from the Full Movement Control Order (FMCO) in June 2021 has lifted the country’s overall GDP, the central bank stated that the quarter GDP growth in April and May this year were particularly strong.

“On a quarter-on-quarter (Q-o-Q) seasonally-adjusted basis, Malaysia’s economy expanded by 3.5% in comparison to the 3.8% reported in Q1 of 2022,” the statement explained.

Over the second quarter, BNM reported that headline and core inflation had both risen by 2.8% and 2.5% respectively, in comparison to the 2.2% and 1.7% that was recorded in Q1.

It said that the rising inflation reflects an improvement in demand conditions amid the high-cost environment with the price increase primarily driven by food away from home and other food items.

As Malaysia’s economic growth is reported to be at 6.9% for the first half of the year, BNM forecasts that the country’s GDP would continue to expand for the remainder of the year.

The central bank’s Governor, Tan Sri Nor Shamsiah Mohd Yunus, stated that despite the fact external demands could experience headwinds due to weaker global development, Malaysia’s economy will continue to be underpinned by robust domestic demand moving forward.

She said that other factors like the recovering labour market conditions, higher tourist arrivals, and the continuous implementation of multiyear investment projects, would keep contributing to the country’s economic growth.

Vulnerable to global risks

Despite the stellar second quarter GDP performance, BNM warns that Malaysia’s growth is still vulnerable to the weaker-than-anticipated global growth, further escalation of geopolitical conflicts, as well as the deteriorating conditions in supply chains.

The statement said that headline inflation is expected to trend higher in some months for the remainder of this year, partly caused by the base effect from the discount on energy prices that was implemented in Q3 last year.

At the same time, core inflation is also anticipated to average higher this year, driven by continuous demand amid the high-cost environment.

However, the central bank said that the extent of the inflationary pressures would be partly contained by existing price control measures, subsidies, and the continued spare capacity in Malaysia’s economy.

Despite that, BNM stated that the inflation outlook remains susceptible to upside risks arising from the strength of local demand, global price developments, as well as domestic policy measures.

Meanwhile, the ringgit devalued by 4.6% versus the US dollar in the second quarter of the year, and declined by 6.3% year-to-date as at Aug 10. This is broadly in line with the movement of Asian currencies which posted a depreciation of 4.7% and 5.8% for Q2 and year-to-date respectively.

BNM explained that this largely attributed to the continued strengthening of the US dollar as a result of the country’s aggressive interest rate hikes, increasing investors’ risk aversion brought on by the weaker global growth outlook, and the Russia-Ukraine conflict.

Nonetheless, the high commodity prices and Malaysia’s economic recovery served to mitigate the impact of foreign developments on the ringgit for the second quarter, it added.

The central bank stated that going forward, although the domestic financial markets will continue to see episodes of heightened volatility, the spillovers to the domestic financial intermediation are anticipated to be broadly contained, supported by Malaysia’s good external position and its strong banking system.

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