KUALA LUMPUR (May 11): UOB Global Economics and Markets Research said Wednesday (May 11) that Malaysia’s real gross domestic product (GDP) growth rate could strengthen to 4.5% in the first quarter, from 3.6% in the fourth quarter last year (4Q21), underpinned by sustained expansion of economic activities.

Its senior economist Julia Goh and economist Loke Siew Ting said in a note that despite the Omicron wave in early February and lagged impact of flash floods in mid-December 2021, January-to-March economic indicators suggested further improvement in real GDP.

“The data suggests that the nation’s real GDP growth could strengthen to our estimated 4.5% year on year in 1Q22 (from +3.6% in 4Q21, Bloomberg est: +4%), partly benefiting from year-ago low base effects,” they said.

On a seasonally adjusted basis, they see Malaysia’s economy holding up its expansion momentum, albeit moderate at 2% (4Q21: +6.6%, Bloomberg est: +2.7%).

The 1Q22 seasonally adjusted absolute value of real GDP is expected to return to pre-pandemic levels for the first time since the Covid-19 outbreak in 1Q20, marking a good start for 2022, they added.

According to them, 1Q22 GDP growth is expected to be driven by a sustained expansion in the services and manufacturing sectors as agriculture, mining and quarrying, and construction sectors take a back seat.

On the aggregate demand side, they said domestic demand is expected to steer overall growth in 1Q22 amid continued positive contribution from net trade and modest stock replenishment activities for the sixth straight quarter.

Private consumption is projected to post the highest growth rate on the back of a further improvement in the labour market and favourable base effects, they said.

They also said ongoing fiscal policy support will likely make public consumption the second top contributor to overall GDP growth last quarter.

“This will help to cushion the persistent sluggishness in total investment amid an increasingly challenging investment environment,” they said.

Barring any unexpected turn in the global outlook, they believe that Malaysia’s economy will continue to expand in the coming quarters.

“This is expected to lift the full-year real GDP growth to 5.5% (from 3.1% in 2021, official est: 5.3%-6.3%), above the long-term 20-year average of 4.5% and official estimated potential output growth of 3.0%-4.0% for 2022 (2021: 2.3%),” they said.

They also opined that the transition to endemicity from April 1 with full re-opening of the economy and country’s borders to international travellers, and upliftment of most Covid-19 containment measures by May 15 are key positive catalysts for growth through the year.

High national vaccination rates against Covid-19 and the continuation of targeted government policy support including cash aids, special EPF withdrawal facility, and various subsidies will also help to underpin domestic growth momentum for the remaining quarters of the year, they said.

The Malaysian central bank will release 1Q22 GDP numbers on Friday.