World Bank ups growth forecast for Malaysia amid economic boom

The World Bank has revised upward its gross domestic product (GDP) growth forecast for Malaysia to 6.4% in 2022 against 5.5% projected earlier on the back of heightened economic activity in the first half of the year.

Apurva Sanghi, the bank’s lead economist for Malaysia, said data showed that the economy had expanded highly above expectations in the first half of the year, driven by better domestic consumption and robust export growth from both the electrical and electronics (E&E) and commodity sectors.

Improved performance in the services, tourism, and manufacturing sectors, coupled with the rebound in construction, also contributed to the better, revised forecast, he said.

"We expect some positive momentum to continue into the second half… the third quarter growth in 2022 should benefit from the low base of the third quarter in 2021 when the economy contracted by 4.5%," he told a virtual media briefing titled "World Bank East Asia and Pacific Economic Update" today.

Sanghi said Malaysia's domestic demand was well supported in the second quarter, driven by improvements in the labour market as well as measures such as the increase in minimum wage and withdrawals from the Employees Provident Fund (EPF).

Private consumption grew 18.3% during the quarter on increased spending on discretionary items such as restaurants and hotels as well as recreational services, while investments grew 5.8$ in both the private and public sectors.

Sanghi noted that the risks of rising inflation, higher cost of living, dwindling effects of cash assistance measures, and sluggish external environment could pose downside risks in 2H22.

"For an economy that is almost 60% dependent on private consumption with two-thirds of growth coming from private consumption, any shock to domestic demand could delay or apprehend the growth momentum in the second half of the year.

"Therefore, that growth is fragile," he warned, adding that Malaysia needs to focus on building a cohesive investment promotion framework to improve foreign direct investment.

Meanwhile, the bank also revised downward Malaysia’s GDP growth estimate for 2023 to 4.2% from 4.5% in view of uncertainties in the global environment. 

He said there were significant headwinds from the uncertainties of the global economy, including the latest developments in Ukraine, the slowdown in China, rising inflation on the domestic front, as well as the shortage of workers that could hinder Malaysia from achieving its full potential. 

Nevertheless, Malaysia’s fundamentals have remained strong, he said, citing the country’s status as a major commodity and E&E player and the limited supply chain disruptions in Asia compared to the West, which he said would provide strong support to growth.