Where Is Malaysia’s Economic Growth Heading?

According to MIDF in its report on the economy, the current growth is spearheaded by businesses buying more intermediate goods in anticipation for better business and demand outlook.

Where Is Malaysia’s Economic Growth Heading?
Leading Index vs GDP (YoY%) 

Reports are that Malaysia’s leading index rebounded to positive growth in May-22 (+2.2%yoy; Apr-22: -0.5%yoy) after 3 months of contraction mainly supported by higher real imports of other basic previous & other non-ferrous metals.

After the two years of lockdowns and restrictions, it is certain the economy is heading towards growth but what type of growth are we talking about?

According to MIDF in its report on the economy, the current growth is spearheaded by businesses buying more intermediate goods in anticipation for better business and demand outlook.

The research firm says the economy is set to grow by 6% this year.

"We maintain our projection that Malaysia’s GDP will grow at +6% this year, better than +3.1% expansion last year. Encouraging growth momentum in the domestic economy will continue going into 2HCY22.

"Despite rising inflation, latest data shows domestic spending activity grew faster, benefiting from reopening of the economy and the international borders. The recovery in job market amid robust labour demand also supports improvement in consumer spending.

"Meanwhile, trade performance shows businesses increased imports of intermediate goods. In line with the improvement in LI, this shows businesses are increasing their activities in anticipation of growing demand," it says.

MIDF says it expects sustained growth in foreign demand for E&E and commodities, especially palm oil and petroleum, will continue to drive Malaysia’s exports in the coming months.

"Nevertheless, we opine downside risks to growth outlook will come mainly from external factors such as sluggish growth in China, the ongoing war in Ukraine, changes in global commodity prices and volatility in the international financial markets."

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Economic activities

On month-on-month change, the LI rebounded and increased by +0.4%mom (Apr-22: -0.5%mom), with higher number of housing units approved and new company registration pointed to improved business outlook.

The current economic activities also picked up further as the coincident index rose faster at +6.4%yoy, the highest expansion in 12 months and mainly underpinned by the stronger retail trade activity.

"Reading from the improvement in LI, we foresee growth momentum in Malaysia’s economy will remain positive going into the second half of 2022.

"Moreover, domestic spending will continue to grow, boosted by continued recovery in the job market, increased people’s mobility and increased tourist arrivals following the reopening of international borders," says MIDF.

Stronger external trade

MIDF says the current growth is supported mainly by the another stronger-than-expected external trade performance.

Total trade grew for the 19th straight month, raising faster by +43.3% yoy to a new record high of RM270.3b in Jun-22.

The sustained increase in Jun-22 brings total trade to RM1.36t in 1HCY22, or 28.6% higher than 1H last year.

Exports growth quickened again to +38.6%yoy in Jun-22 (May-22: +30.5%yoy), underpinned by stronger growth in domestic exports (Jun-22: +30.5%yoy; May-22: +22.2%yoy), on the back of increased external demand for E&E, petroleum, palm oil and LNG.

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Meanwhile, the growth in imports also accelerated, expanding by +49.3%yoy in Jun-22 (May-22: +37.2%yoy) which is the fastest growth since Feb-98.

While this indicates improved growth momentum in line with further reopening of the economy, it also reflects more normalized domestic economic activities coming out from the nationwide lockdown one year ago.


Malaysia’s labour market remained firm as jobless rate stayed at 3.90%, lowest since Mar-20. Labour force and employment expanded strongly, +2.7%yoy and +3.4%yoy in May-22, the highest expansion rate ever registered.

Unemployment continued on contractionary form of double-digit rate for 6-consecutive months. However, robust growth in employment notably driven by employer (+8.9%yoy), self-account worker (+9.4%yoy) and unpaid family workers (+11.6%yoy).

Employee segment which represents 76.2% of total employment grew modestly by +1.5%yoy (Apr-22: +1.5%yoy). The continued firm expansion in employment and reduction in unemployment was due to the positive effects of upbeat momentum of domestic economy, international borders reopening and steady external sector.


As domestic demand strengthened, core inflation rose by +3.0%yoy, fastest gain since Apr-16.

The continuous upward trend in core CPI indicates the underlying price pressures from surging domestic demand, underpinned by improving labour market condition and domestic reopening effects.

"We opine the steady uptick in core inflation will increase the chances that BNM will consider for another rate hike in Sep-22. The headline CPI inflation also rose to +3.4%yoy in Jun-22, higher than Bloomberg’s consensus of +3.1%yoy.

"As of 1HCY22, average headline inflation is +2.5%yoy (1HCY21: +2.3%yoy), still within BNM’s inflation forecast range +2.3~3.3%. Non-food CPI rose by +2.0%yoy while food inflation hit record high +6.1%yoy.

"On the month-on-month basis, all major CPI components including core CPI registered positive growth rate," says MIDF.