THE latest Bank Negara briefing presented a mixed bag of economic data for Malaysia. On the bright side, it was announced that Malaysia recorded its strongest annual economic growth in two decades for 2022. With a 8.7% growth, exceeding expectations, the economy surpassed the pre-pandemic level of 2019.The labour market is recovering, domestic demand continues to expand and the country’s headline inflation is averaging 3.3% for 2022. If OPR remains at 2.75%, then we can’t rope-in imported inflation. And exchange rate cannot then be on “a wing and a prayer”.
On a seasonally-adjusted quarter-on-quarter basis, the economy contracted by 2.6% in the fourth quarter of 2022 (4Q22), after slowing down in the previous three quarters.
Three sectors of the economy – construction, agriculture as well as mining and quarrying – remained below the pre-pandemic level. Really, the two sectors to focus on are services and manufacturing. Together they constitute more than 80% of GDP.
Within the services sector, some sub-sectors are also below pre-pandemic levels, namely food and beverage, accommodation, real estate, business services and private education. Underlying or core inflationary pressures have remained stubbornly high at 3% in 2022 and are expected to stay elevated, despite some moderation expected in 2023.
Credit growth also slowed down in 4Q22 as loan repayments outpaced disbursements. Malaysia’s mixed economic performance is not surprising. While the country has recovered well from the effects of Covid-19 restrictions, it had to manage various domestic and external headwinds.
The latest official gross domestic product (GDP) projections would be released in the upcoming Budget 2023 to be tabled on Feb 24. For 4Q22, Bank Negara announced that the GDP expanded by 7% year-on-year. The growth was still above the long-term average of 5.1%. The 4Q22 growth was supported by continued expansion in private consumption and investments, improving labour market conditions, resilient demand for electrical and electronic (E&E) goods as well as the recovery in tourism activities. The services sector grew by 8.9% y-o-y, down from 16.7% in 3Q22.
The manufacturing sector expanded by 3.9% y-o-y in 4Q22, on the back of continued expansion in E&E, primary and consumer clusters. In comparison, the sector grew by 13.2% y-o-y in 3Q22.
MIDF Research anticipates the domestic economy to expand further by 4.2% in 2023. The reopening of China’s economy sooner than predicted is expected to provide extra boost to Malaysia’s services exports as well as tourism activity.
The drivers of growth remain private sector consumption and investment. Spurring consumption may elevate inflation while improving the eco-system for private investment will help us generate GDP above 4-5% in 2023. So, for the Government’s priority is to listen to trade associations, professionals and others on how bureaucracy or “red-tape” that can be undone without compromising quality. For example, a Residence Pass Talent visa is handled jointly by Talent Corp and Immigration. When you need the right professional, why must Immigration be involved as the co-chair of an approval Committee? Simple streamlining of processes and getting “control” out of the way is progress.
Ease of doing business is key to attracting FDIs not just incentives. We may have superior incentives than Singapore but investors still prefer Singapore because of ease of doing business, speed of response by authorities and a “clean” image in getting things done. Our competition – Indonesia, Thailand and Vietnam - are working on improvements year-on-year. Please don’t get into a sleep mode now!
Reference:
“Honeymoon” over as reality sets in, Ganeshwaran Kana, The Star, 11 Feb 2023
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