THE economic path since the Covid-19 pandemic started in Malaysia is anything but a smooth one. Our economy suffered as the country went through three lockdowns (albeit with different levels of severity) in 2020, early 2021 and mid-June 2021.

As a result, Malaysia’s economic growth posted a deep contraction of 5.5% year-on-year (y-o-y) in 2020, and a slight recovery of 3.1% y-o-y in 2021.

Only in April 2022, Malaysia began opening its international borders with the country transitioning towards endemicity. The double-dose vaccination rate then had almost reached 80% while the Omicron’s outbreak threat turned out less severe than expected.

This gave hope that Malaysia would realise its full potential performance to reach its pre-Covid level.

Nonetheless, the local economy had begun picking up steam in the first quarter of 2022 leading to expectations of a vibrant 5% y-o-y growth after a 3.6% advancement in the prior three months. It also fell well within our 5% to 5.2% projection range.

In the supply side, the services sector, which contributed 58.2% to the economy, grew a robust 6.5% y-o-y, driven by the transport and storage sub-sector, followed by wholesale and retail and food and beverage.

Upswing in E&E products

Both the manufacturing sector and exports’ growth were bolstered further, mainly driven by the electrical and electronics (E&E) products upswing and surging palm oil prices also helped support the local economy.

Meanwhile, private consumption was also on the upside due to the easing of pandemic restrictions, while business sentiment improved with private investment posting the first annual growth after two consecutive quarters of declines.

The release of the second quarter of the year’s gross domestic product (GDP) reading yesterday was an interesting event this time as the economy has fully reopened and we can assess if Malaysia’s economy can return to the way it was during the pre-Covid era.

While consensus is looking at 6.9% y-o-y, the actual figure indicated that the local economy in the second quarter expanded 8.9% y-o-y even better than our estimation of 8.4% y-o-y, from 5% y-o-y in the first quarter.

One of the main drivers for the strong performance is the robust net exports which expanded 10.4% y-o-y from 8% y-o-y in the first quarter.

It must be noted that gross exports easily hit 30% y-o-y annual growth rate during the same quarter. It was propelled by the solid performance of E&E products and commodity-based products such as petroleum products and palm-oil based items.

Going green

The lingering demand for electronic devices to accommodate work-from-home arrangement had definitely benefited the semiconductor sector globally. Plus, more consumers are shifting their preferences from gas-consuming vehicles towards electrified ones in light of the greater awareness on saving the environment.

This had induced a surge in demand towards automotive chips to the point of global shortage.

In addition, the Ukraine-Russia war, devastating in terms of a humanitarian perspective, also disrupted global commodity markets, including energy-related commodity prices.

Net imports, which measure domestic demand, also benefited Malaysia’s growth, leaping 14% y-o-y in the second quarter. Although some people think that imports have a negative impact on GDP calculation, imports also mean that we take in intermediate goods which will be used later in production and fulfilling the domestic consumption demand itself.

It is undeniable that we will take the net trade figure by deducting imports from exports amount in calculating GDP, but that is only for technical terms.

Fundamentally, imports is one way of spurring economic growth. Using gross calculation, the importation of intermediate goods surged 36.4% y-o-y during the three months to June (first quarter: 28.7%), and goods for consumption by 18.1% (first quarter: 24.3%).

Looking at sectoral accomplishment, the services sector, which is a major contributor in the GDP calculation, notched up 12% y-o-y (first quarter: 6.5% y-o-y) while manufacturing expanded 9.2% y-o-y (first quarter: 6.6%).

The construction sector rebounded 2.4% y-o-y after posting 6.2% y-o-y contraction in the previous quarter.

On the other hand, mining and quarrying decreased slightly by 0.5% y-o-y (first quarter: minus 1.1%) while agriculture fell 2.4% y-o-y following a marginal growth of 0.2% y-o-y in the first quarter of this year.

Manufacturing performance as reflected by the Purchasing Managers’ Index, was growing albeit at a muted pace as it averaged 50.7 during the quarter.

Amidst steady output and new businesses, the sector was outweighed by renewed lockdowns in China, global supply chain disruptions which caused firms to face swelling input prices and delayed input arrivals, and shortage of foreign workers. For FX enquiries, contact: ambank-fx-research@ambankgroup.com

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