The Malaysian economy grew by double digits! What does that mean for you?

The verdict’s in! Malaysia’s GDP growth for the third quarter of 2022 came in at 14.2%, much higher than the 8.9% growth in the second quarter of 2022.

Wondering how this economic performance affects you? You can obtain and understand some points from this economic performance to make better investment, finance, and business decisions!

#1: 3Q 2022 economic growth was actually one of the strongest in recent times.

The last time the Malaysian economy had such strong growth was in the 2Q 2021 with a growth of 15.9%.

The growth of 14.2% in 3Q 2022 was much higher than the pre-pandemic historical average of 4.9% from 2016 to 2019.

Some context will be important here for you to consider. Malaysia instituted lockdown restrictions last year in the third quarter, resulting in a contraction of 4.5%. However, as more and more Malaysians got vaccinated for the second dose, the government allowed people to go back to office and businesses to open.

As a result, the economy recovered to a growth of 3.6% in 4Q 2021 and subsequently grew by 5.0% and 8.9% respectively in 1Q 2022 and 2Q 2022. This strong growth of 14.2% is a continuation of that trend and is important for investors and businesses to consider.

For businesses, this means that there is confidence in the overall economy, and they will continue to operate as per usual or probably expand their businesses also. For investors, better revenue and profits mean that their investments will probably also improve.

#2: All sectors in Malaysia recovered at strong rates.

If you look at the detailed breakdowns of which sectors are performing well, all of them did.

The services sector (biggest sector at 58% of GDP) grew even stronger at 16.7% in 3Q 2022 compared to 12.0% in 2Q 2022. Meanwhile, the second biggest sector of manufacturing, grew by 13.2% compared to 9.2% over the same period.

More surprisingly, the mining sector rebounded to a growth of 9.2% in 3Q 2022 from a contraction of 0.5% in 2Q 2022, while the agriculture sector also had the same trend, growing at 1.2% compared to 2.4% contraction over the same period.

What can you gain from these insights then?

If you are an employee working in the services and manufacturing sector (which a big proportion of Malaysians do), you can expect your pay raise for next year to be higher than usual.

If you own a business, this insight is important for you to decide how much you want to invest to expand your capacity depending on which industry you are in.

#3: In the Southeast Asia region, Malaysia’s performance is the strongest.

Surprise! Malaysia actually recorded the strongest economic growth in the 3Q 2022 when compared to other countries in Southeast Asia. Its 14.2% growth comes in at first, followed by Vietnam (13.7%), Philippines (7.6%), and Indonesia (5.7%).

Throughout 2022, Malaysia also recorded the highest average growth of 9.4%, followed by Vietnam (8.8%), Philippines (7.7%), and Indonesia (5.3%). What does this mean for investors?

For investors that are looking to rebalance their portfolios according to countries, you can take this analysis and possibly invest more in countries that are recording higher economic growth. After all, higher economic growth normally means companies are making more money, which leads to higher profits and share prices.

However, it is also wise to consider the fundamentals of the companies and markets that you are trying to invest in more detail, rather than just a big picture analysis.

#4: Inflation has started to slow.

This is good news for the average Malaysian consumers. While inflation or price increases still remain high, it has eased to 4.5% in September 2022 from the peak of 4.7% in August 2022.

For context, inflation has been climbing as global commodity prices such as crude oil, natural gas, wheat, soybean, fertilisers and animal feed rose sharply during the Russia-Ukraine conflict.

Most importantly, food & non-alcoholic beverages price growth eased to 6.8% from 7.2% over the same period. Many Malaysians were worried that food prices increases are just going to get more severe especially during the period when chickens prices were increased in June 2022.

At least for now, RON95 prices are still maintained at RM2.05 per litre even when global crude oil prices have been rising. However, this might change if the government decides to reduce the fuel subsidy if it has budget problems after the election.

#5: The job market continues to improve.

The job market in Malaysia continues to recover back to its pre-pandemic days.

Unemployment rate – which measures the percentage of people still out of a job but are looking for one – continued to decrease to 3.7% in 3Q 2022 from 3.9%% in 2Q 2022.

The highest unemployment rate was 4.8% in 2Q 2021. If you are looking for industries with the highest pay, you can take a look here in the article we wrote on Malaysia’s highest paying industries.

For job seekers, this is good news as companies are now hiring more people with a total of 191,300 vacancies still up for grabs. The number of unemployed people have declined to 611,800 in 3Q 2022 from 642,000 in 2Q 2022. Get your resumes polished and apply for that job you have been meaning to!

For employers, you will be glad to know that labour productivity (value added or GDP per employee) has also increased to 10.1 per employee in 3Q 2022 from 5.5 per employee in 2Q 2022. Make sure that your employees get that bump in pay raise for next year as a reward for their hard work and dedication!

#6: However, there are still substantial risks.

While the economic data in 3Q 2022 indicates that the Malaysian economy is still on the right path towards recovery, there remains many risks that could derail this growth such as higher global interest rates and slower global growth.

Higher global interest rates might seem technical, but it just means that other countries in the world are raising their interest rates (this affects your loan interest rates). Why are they doing this? High inflation is the culprit here.

In a nutshell, higher interest rates can reduce inflation through encouraging people and companies to consumer and invest less, thus reducing demand and prices of products and services.

Why does this matter? Bank Negara is also raising interest rates to bring inflation down but could potentially reduce economic growth. As Malaysia is also dependent on exports, a slowdown in global demand could have consequences for Malaysia too.

For investors, you need to take note of these developments. Malaysia’s economy is doing well but its stock market is not. The FBMKLCI index (Malaysia’s main stock market index) is down 7.5% from the beginning of the year because of all these risks.

From Bank Negara’s point of view, a strong economy means that it can afford to raise interest rates to reduce inflation.

As an employer or homebuyer, this could mean higher interest rate payments on loans.

Conclusion

There are many lessons and takeaway points that you can obtain from this quarter’s economic performance. Some of it might be useful to you as an employee, investor, or business owner. More importantly, here are some key points that you should understand :

  1. Malaysia’s economy is recovering well with a stronger job market – positive for you as an employee, and good for business.
  2. Inflation remain high but has started to slow – positive for you as a consumer, and good for business that imports a lot of raw materials.
  3. There are still substantial risks to Malaysia and the global economy – take note as an investor that stock markets are down currently, and businesses should be cautious about the future outlook on their industries.

 

Let us know in the comments below on what you think about Malaysia’s economy now!

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