KUALA LUMPUR (June 3): The Malaysian economic recovery is set to gain further momentum in the second half of this year (2H22) despite political noise, but the country’s economy is still nowhere close to 2019 levels yet, said AmBank Research.
Malaysia is expected to post a 5.6% growth in gross domestic product (GDP) this year, mainly supported by strong trade and investment activities, coupled with low base effect, said the research firm’s chief economist Dr Anthony Dass.
The Southeast Asian trade and transit hub’s economy grew 5% in the first quarter this year, after posting 3.1% GDP growth in 2021.
“Things are slowly picking up after we opened the borders; whether we have gone back to 2019 level, no, but many [sectors] are slowly coming up,” he said at a virtual briefing on 2H market outlook on Friday (June 3).
The economist said the electrical and electronics (E&E) sector is one of the exceptions, buoyed by strong chip demand globally, but overall businesses are still clouded by elevated input prices, which post upward pressure on underlying inflation.
“Globally, we only see there is a strong demand-pull inflation in the United States, because the household balance sheet there is still very strong. Whereas in many other countries including Malaysia, it is more costs-driven [inflation],” he said.
Having said that, Dass noted that most domestic economic indicators are suggesting recovery is gathering steam.
“What we are seeing today is people are spending more, business loans, wholesale and retail trade, their trends are all slowly coming up. All these are showing that we are recovering, but we have not come to 2019 levels,” he added.
External headwinds are expected to remain as Malaysia is a very open economy after Hong Kong and Singapore, the economist said, and warned that China’s “pro-Russia” policy may hurt major trading partners like Malaysia.
“This is always on the back of my mind, if that happens, it is certainly going to hurt Malaysia as China is the largest trading partner, representing 13.5% of total trade,” he explained.
Dass expects Malaysia's exports to grow 16% to 17% this year, with E&E, rubber glove, crude palm oil, crude petroleum and natural gas supporting overall external trade.
“We will be riding a lot on the price factor, more than the volume itself,” he said, due to the ongoing labour shortage issues, especially in the palm oil industry.
“Palm oil is picking up but we have a new challenge — Indonesia has stopped labour coming into Malaysia, assuming average CPO price of RM5,500, the plantation industry should be facing a revenue loss of RM20-24 billion this year. If we take [year-to-date average price of] RM6,440, then we are talking about easily losing RM24-28 billion,” he said.
In terms of investment, Dass said Malaysia is still being viewed positively by international companies judging from investment approved up to 2021.
“Bulk of the approved investments are not for expansion, they are for new commitments irrespective of the country’s political climate. But to say Malaysia is losing investment is also true,” he said.
Dass said investments that Malaysia is losing are those involving low-cost labour as wages have gone up in the country, and public policies seem to focus on creating more jobs with higher value-add.