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2022Q3: Can Malaysia Sustain A Resilient Recovery?

20 September 2022

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  • Risks of the global recovery being setback persist. Risks to the global recovery remain skewed to negative. A period of sub-par global growth is the most likely outcome. We expect uneven growth across advanced economies as tempered by high inflation, the acceleration of monetary tightening, continued aggression in the Eastern Europe, emerging market vulnerabilities as major central banks taper and a correction of bubbly financial asset markets and emerging market currencies’ depreciation.

  • Data prints point to decelerating growth pace. Both the latest PMIs for manufacturing and services indicated that the global economy contracts for first time in August since June 2020 with downturns signalled in all sectors except financial services and there are signs of excess capacity as backlogs fall and jobs growth slows.

    Inflation remains high in major advanced economies though some were easing off from the peak. High crude oil and gas prices remain a wild card. As monetary policy tightens, annual inflation will remain elevated. However, further significant market instability is unavoidable even after inflation has peaked.

  • Soaring inflation forces central banks to take forceful and rapid steps in raising interest rates. With the exception of China is loosening monetary policy and Bank of Japan is keeping its negative policy rate, most central banks see the compelling need to move interest rates upward to avoid entrenched unanchored inflation expectations and damaging their credibility. Policymakers must resolute to control inflation to avoid potentially more painful and disruptive adjustments later.

  • Mind the multiple risks ahead. Against the challenging backdrop of higher and longer inflationary pressures, weaker economic growth prospects, tighter monetary policy and financial conditions, weakening emerging market currencies, the central banks are confronted with a difficult task to act forcefully on inflation while not risking of sapping their economies.




  • Extraordinary economic growth in 2Q 2022. With the reopening of economy and international borders, robust domestic demand, especially private consumption and continued exports have delivered an exceptional 8.9% yoy real GDP in 2Q 2022 (5.0% in 1Q). Real GDP averaged 6.9% in 1H 2022. On a monthly compilation, real GDP grew by 5.6% yoy in April, 5.0% in May before expanded robustly by 16.5% in June, largely boosted by a low base effect in June 2021 on the Movement Control Order (MCO).

  • Consumers would be the deciding force in deciding whether the turbocharged 2Q GDP growth can be sustained in the quarters ahead. The drivers for a robust private consumption growth in 2Q (18.3% yoy vs. 5.5% in 1Q) are the release of pent-up consumer spending supported by continued cash handouts; the fourth withdrawal of EPF money estimated RM45 billion; and also, higher demand during the Hari Raya Aidilfitri festive celebration. In addition, a revival in tourism activity, albeit largely supported by domestic tourists as foreign tourists are gradually returning.

  • Going into 2H 2022 and in 2023, we remain wary about the strength of consumer spending on rising inflation, higher cost of living and the tapering effect of consumption and cash flow assistance measures such as the ending of targeted loan repayment assistance, and resumption of the EPF employees’ contribution rate starting July 2022.

  • Domestic and external headwinds dampen private investment. Private investment has gained higher growth traction in 2Q (6.3% yoy vs. 0.4% in 1Q 2022), due to improvement in structures and continued expansion in machinery and equipment investment. However, the headwinds remain: Shortage of workers, increased business costs, the weakening ringgit and concerns about slowing global growth and recession risk in the US economy.

  • Headline inflation accelerates. Headline inflation increased higher to a 14-month high of 4.4% yoy in July (3.4% in Jun vs. 2.5% in 1H 2022), in tandem with the strengthening of consumer demand, increased prices of some essential food items (i.e. chicken, eggs, and cooking oil) and services as well as the lapse of low base effects, especially for electricity tariffs. Core inflation also quickened to 3.4% in July from 3.0% in June (2.2% in 1H 2022), marking the highest level since March 2016, reflecting higher consumer spending.



  • The 2023 Budget must be fiscally responsible with reforms thrust to keep the fiscal consolidation on track. As the economy has moved out of the economic contraction, it is no longer require extraordinary massive deficit fiscal spending packages as delivered during the COVD-19 pandemic in 2020-2022.

  • We estimate a deficit budget of 4.5%-5.5% of GDP in 2023 compared to an estimated average deficit of 6.2% in 2020-2022. The short-term intentions to sustain firmer economic recovery must ensure that fiscal resources are managed effectively and efficiently, having regard to its likely impact on present and future generations. Managing prudently the fiscal and debt risks facing the Government.

  • The Budget’s strategies focus on implementing credible economic policies and undertaking structural reforms geared towards enhancing our nation’s competitiveness and better investment climate, ensuring economic growth sustainability as well as making life better for individuals and families.

  • The Budget must seek to re-prioritize public spending towards expenditures in infrastructure, climate change related projects, health, transportation, skills development, education and supporting the vulnerable segment of the population. The implementation of 5G infrastructure must be accelerated; facilitate private sector, especially SMEs transition towards the adoption of ESG.


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