Malaysia Records Buoyant GDP Growth In 2022

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The Malaysian system showed accelerated yearly economical maturation successful 2022, astatine a gait of 8.7% year-on-year (y/y). This was nan fastest yearly GDP maturation complaint since 2000. Easing of COVID-19 restrictions successful early 2022 helped to thrust a rebound in backstage consumption. Exports besides posted beardown growth, boosted by rising world commodity prices and buoyant maturation successful manufacturing exports.

However, nan gait of Malaysian economical maturation is expected to mean importantly successful 2023 owed to a number of headwinds, including nan effect of precocious guidelines twelvemonth effects and slowing export growth. That said, an important affirmative facet is expected to beryllium nan gradual betterment of world tourism visits from Asia, nan Middle East and Europe.

Malaysian system rebounds successful 2022

The Malaysian system grew astatine a gait of 7.0% y/y successful nan 4th fourth of 2022, which brought yearly GDP maturation for almanac 2022 to 8.7% y/y. However, GDP contracted by 2.6% connected a quarter-on-quarter (q/q) basis.

Malaysia GDP growth

Malaysia GDP growth

Helped by beardown home demand, nan Malaysian services assemblage grew astatine 8.9% y/y successful nan 4th quarter, still showing accelerated description aft nan very beardown maturation complaint of 16.7% y/y recorded successful nan 3rd quarter. The building assemblage besides recorded accelerated maturation of 10.1% y/y successful nan 4th quarter. The gait of maturation successful nan manufacturing assemblage moderated importantly to 3.9% y/y successful nan 4th quarter, compared pinch 13.2% y/y successful nan 3rd quarter.

Reflecting softening momentum successful nan manufacturing sector, nan seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers' Index (PMI) dipped from 47.8 successful December to 46.5 successful January. The latest reference suggests that nan gradual slowdown successful manufacturing accumulation and GDP maturation astatine nan extremity of 2022 continued into January 2023. This January PMI study signals further moderation successful nan manufacturing assemblage successful nan near-term outlook.

S&P Global Malaysia Manufacturing PMI

S&P Global Malaysia Manufacturing PMI

During 2022, an important affirmative facet for nan Malaysian manufacturing assemblage was nan spot of manufacturing exports. Overall, Malaysian merchandise exports has performed powerfully during 2022, pinch exports rising by 25% y/y. Exports of manufactured equipment roseate by 22% y/y during 2022, boosted by exports of electrical and physics products, which roseate by 30%.

Rising world commodity prices besides boosted commodities exports, pinch mining exports up by 68% y/y owed to beardown exports of lipid and gas, while cultivation exports roseate by 23%.

Malaysia's awesome export markets

Malaysia's awesome export markets

In 2023, nan gait of export maturation is expected to moderate, reflecting guidelines twelvemonth effects arsenic good arsenic nan economical slowdown successful cardinal markets, notably nan US and EU. As mainland China is Malaysia's largest export market, accounting for 15.5% of full exports, nan expected rebound successful mainland China's system during 2023 whitethorn thief to mitigate nan effect of softening exports to nan US and EU.

Inflation pressures person been gradually easing

In nan manufacturing sector, input costs accrued for nan thirty-second period moving successful January 2023 though nan complaint of ostentation continued to easiness and was nan softest recorded successful this sequence, arsenic firms reported little prices for a assortment of inputs including oil. At nan aforesaid time, manufacturers raised mill gross charges for goods, albeit only fractionally arsenic nan walk done of higher costs to clients was partially offset by nan caller appreciation of nan ringgit against nan USD since early November 2022 arsenic good arsenic accrued competition.

Malaysia Manufacturing PMI: Input and Output Prices

 Input and Output Prices

In Malaysia, CPI ostentation pressures person begun to gradually moderate, easing to a gait of 3.8% successful December 2022, compared pinch 4.5% y/y successful September. During 2022, Malaysia's cardinal bank, Bank Negara Malaysia (BNM), had reduced nan grade of monetary accommodation successful a bid of tightening steps. The astir caller monetary argumentation tightening was connected 3rd November 2022, erstwhile nan Monetary Policy Committee decided to summation nan Overnight Policy Rate (OPR) by 25 ground points to 2.75 percent. In its January 2023 Monetary Policy Statement, BNM assessed that complete nan people of 2023, header and halfway ostentation are expected to mean but stay astatine elevated levels amid lingering request and costs pressures.

Moderating world electronics request adds to headwinds

The electrical and electronics (E&E) assemblage has been an important driver of Malaysia's manufacturing exports. Exports of E&E products, which accounted for 38% of merchandise exports, roseate by 30% y/y successful 2022. This accelerated maturation was driven by robust world request for semiconductors, reflecting technological trends specified arsenic 5G rollout, unreality computing, and nan Internet of Things. Exports of integrated circuits grew by 33% y/y successful 2022, while exports of parts for integrated circuits roseate by 120% y/y. The mixed exports of integrated circuits and parts accounted for 58% of Malaysia's full exports of E&E products successful 2022.

However caller S&P Global study information indicates that nan world electronics manufacturing manufacture is facing headwinds from nan weakening gait of world economical growth. This is expected to consequence successful moderating maturation momentum for Malaysia's E&E industry, compared pinch nan very accelerated gait of description successful 2022.

The header S&P Global Electronics PMI posted 48.9 successful January, down from 50.1 successful December 2022, to awesome a deterioration successful operating conditions crossed nan world electronics manufacturing assemblage astatine nan commencement of 2023. The latest information indicated a renewed contraction successful nan world electronics sector, reflecting further declines successful caller orders and output.

S&P Global Electronics PMI

S&P Global Electronics PMI

S&P Global Electronics PMI New Orders Index

S&P Global Electronics PMI New Orders Index

The level of activity outstanding astatine world electronics manufacturers declined for a seventh consecutive period astatine nan commencement of 2023 and astatine nan fastest complaint since June 2020. Lower caller orders and nan easing of supply-chain constraints allowed firms to activity done unfinished business, according to panellists. All 4 monitored sub-sectors recorded contractions successful backlogs successful January. Weakening economical maturation momentum successful nan US and EU has impacted connected user request for electronics, pinch nan economical slowdown successful mainland China during nan 4th fourth of 2022 besides contributing to nan downturn successful caller orders.

Economic outlook

The Malaysian system rebounded powerfully during 2022, pinch economical maturation momentum boosted by nan easing of COVID-19 restrictive measures arsenic good arsenic buoyant exports of electrical and physics products, thenar lipid products arsenic good arsenic lipid and state exports.

In 2022, higher world lipid and state prices arsenic a consequence of nan Russia-Ukraine warfare boosted Malaysian power exports and contributed to higher fiscal revenues. Malaysia besides benefited from higher mean thenar lipid prices, owed to disruptions to world edible lipid markets, including Ukrainian exports of sunflower oil.

Looking to nan twelvemonth up successful 2023, nan reopening of world borders crossed nan Asia-Pacific region, notably successful mainland China, will thief nan continued gradual betterment of nan world tourism industry, which was an important portion of nan Malaysian system anterior to nan pandemic. This will thief to mitigate nan effect of slower maturation for merchandise exports. Domestic request is expected to beryllium resilient successful 2023, helped by nan betterment successful labour marketplace conditions. Easing of restrictions connected introduction of migrant labour will besides gradually thief to support manufacture sectors that are reliant connected overseas workers.

There are a number of downside risks to nan near-term maturation outlook, peculiarly owed to nan slowdown successful world growth. Malaysia's export assemblage is susceptible to weakening economical maturation momentum successful nan US and EU, which together relationship for astir one-fifth of full exports. However, nan easing of COVID-19 restrictions successful mainland China could thief to boost Malaysian exports to this cardinal market, which is Malaysia's largest export marketplace and accounts for astir 15% of full exports.

Despite nan slowdown successful world electronics orders successful caller months, nan medium-term economical prospects for Malaysia's electronics manufacture are favourable. The outlook for electronics request is underpinned by awesome technological developments, including 5G rollout complete nan adjacent 5 years, which will thrust request for 5G mobile phones.

Demand for business electronics is besides expected to turn quickly complete nan mean term, helped by Industry 4.0, arsenic business automation and nan Internet of Things boosts quickly maturation successful request for business electronics.

Malaysia's competitiveness arsenic a world electronics hub has been highlighted by nan determination of a number of electronics multinationals to put successful large-scale caller projects. Intel is investing USD 7 cardinal successful a caller semiconductors packaging works successful Penang, which is estimated to beryllium completed by 2024 and create thousands of caller jobs successful Malaysia. Infineon Technologies is constructing a caller state-of-the-art wafer fab module successful Kulim, pinch astir Ringgit 8 cardinal of investment. The caller module, which is expected to beryllium completed successful 2024, will adhd important manufacturing capacity successful powerfulness semiconductors.

Overall, nan mean to semipermanent maturation outlook for Malaysia remains favourable, pinch full nominal GDP measured successful USD position forecast to emergence from USD 373 cardinal successful 2021 to USD 720 cardinal by 2030. Meanwhile per capita GDP is projected to emergence from USD 11,500 successful 2021 to USD 20,000 by 2030, which will thief to thrust nan maturation of nan home user market.

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Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

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