KUALA LUMPUR (Aug 12): Bank Negara Malaysia (BNM) is keeping its gross domestic product (GDP) growth projection at 5.3% to 6.3% this year, even with better-than-expected second-quarter (2Q) economic growth and potentially stronger performance in 3Q.
“For 3Q, we expect that growth would be much higher because of the base effect,” the central bank’s governor Tan Sri Nor Shamsiah Mohd Yunus told reporters at the 2Q GDP briefing on Friday (Aug 12).
Malaysia's GDP contracted 4.5% in 3Q last year, when the economy was still disrupted by intermittent Covid-19 lockdowns.
The country’s economy grew 8.9% in 2Q this year, bringing first-half GDP growth to 6.9%, driven mainly by consumption activities, amid recovery in labour market conditions, Nor Shamsiah said.
“We have enough tailwinds where domestic demand like consumption, private investment and even public investment are set to offset weakening external demand. All in all, for the whole year, we are still keeping our forecast of 5.3% to 6.3%,” she said.
Nor Shamsiah said the outlook, however, is subject to risks related to weaker-than-expected global growth, heightened geopolitical tensions, global financial market volatility and supply chain disruptions, leading to much slower economic growth.
The governor also noted that the labour market continued to improve in the first half, and expects further improvement going forward.
“Unemployment is now at 3.8%, and our labour participation rate has also exceeded pre-pandemic levels, while job creation has continued to increase. As the economy recovers, we do expect the labour market to continue to improve,” she said.
Nor Shamsiah said wages in the manufacturing and services sectors continued to rise, partly supported by the minimum wage hike.
However, in a report on Friday, Capital Economics senior Asia economist Gareth Leather noted that Malaysia's GDP growth slowed quarter-on-quarter from 3.9% in 1Q to 3.5% in 2Q.
“We expect further slowdown over the coming quarters, as commodity prices drop back and the boost from [the economic] reopening fades,” he said, adding that the year-on-year expansion was the result of the base effect, as the economy recorded a sharp contraction in 2Q last year.
The economist projected a year-on-year growth of 8.5% this year, and 5.5% in 2023.
“Growth will slow further from here. The boost to the economy from [the economic] reopening will fade now that daily life has broadly returned to normal following the pandemic,” he said.
Nonetheless, Leather said the slowdown is likely to be relatively mild, with the reopening of international borders set to provide decent support to activity.
“Tourism generated 6% of GDP before the pandemic. An easing of border restrictions also allows companies in sectors such as palm oil cultivation to fill labour shortages,” he said.
“Inflation has risen in recent months. But it is much lower in Malaysia than in the rest of the world, with generous subsidies helping to keep fuel prices contained. As such, while higher prices will hold back consumer spending, the drag will not be as large as in the rest of Asia.
“Meanwhile, with employment at record highs, a tight labour market will also help support consumer spending,” he added.
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