Why did Malaysia’s economy grow strongly in the first half of 2022?
International Business News – In the first half of 2022, against the backdrop of sluggish or even retrogressive global economic growth in the post-epidemic period, the Malaysian economy showed a recovery trend. According to a report released by the Bank Negara Malaysia on August 12, in the second quarter of 2022, the country’s gross domestic product (GDP) increased by 8.9% compared with the same period last year, which is much higher than the International Monetary Fund’s (IMF) global economic growth in 2022. A pessimistic estimate of 3.2%. The reasons can be summarized into the following three points:
1. The release of domestic demand and the overall improvement of the domestic consumption environment
At the beginning of 2022, the Malaysian government gradually eased the restrictions on the movement control order, and announced the lifting of most epidemic prevention restrictions in May. Malaysia’s economic market has regained its vitality, consumer demand has been released, and domestic demand has surged, becoming the main driving force for domestic economic growth. With the recovery of the consumer market, Malaysia’s job market has gradually recovered, labor market conditions have improved, and the unemployment rate has been stable with some declines. The service industry and manufacturing industry have become strong industries that promote economic growth. It is worth mentioning that the pent-up demand in the consumer market has suddenly been released, superimposed on the low base effect after the epidemic blockade in 2021. In contrast, it highlights that Malaysia’s economic growth momentum in the first half of 2022 is particularly rapid, but it also means that Malaysia’s high growth rate since then. A gradual slowdown after growth has become a certain degree of inevitability.
2. Financial support and orderly implementation of a series of aid programs
Since the beginning of the epidemic, the Malaysian government has launched 8 financial aid schemes to promote economic development, mainly in the form of government aid, with a total value of RM530 billion, many of which will continue in 2022. In the 2022 Budget, a number of fiscal support policies are proposed to help the economy recover further. These policies have been implemented on a large scale since the beginning of this year, such as the Job Guarantee Program (JaminKerja), which aims to provide graduates, disadvantaged groups, The unemployed and other groups provide subsidies; the Wage Subsidy Program (Program Subsidi Upah), which aims to provide subsidies to help companies and employers pay wages to their employees; the Small and Medium Enterprise Financing Revitalization Program (SMERF) to help the development of small and medium-sized enterprises (SMEs), which are the backbone of the Malaysian economy. The 12th Malaysia Plan (Rancangan Malaysia Ke-12), proposed in September 2021, also focuses on promoting economic recovery and raising people’s income, and it will bear fruit in early 2022. The total allocation of this plan is expected to reach RM400 billion, which is committed to ensuring sustainable economic growth and more equitable social distribution, hoping to build Malaysia into a high-income country and a high-tech country by 2025. As can be seen from the above measures, the government’s fiscal stimulus has played an important role in Malaysia’s economic growth. However, while Malaysia is recovering economic growth, it can be observed that the government is gradually reducing some epidemic subsidies in a planned way. The representative one is that the government proposes to cancel the price subsidies for chicken, eggs and canned cooking oil from July. This move directly raised the living cost of Malaysians, and to a certain extent sparked public dissatisfaction with the government.
3. The door of the country is opened, and the export-oriented economy releases its vitality
Malaysia is an export-oriented economy with trade accounting for about 120% of GDP. In 2022, as the epidemic subsides and the international market is further opened, inflation rates in Europe and the United States remain high, economic performance is sluggish, and the conflict between Russia and Ukraine continues to shake global energy prices. As the second largest oil and gas producer in Southeast Asia and the net Malaysia, an exporting country, has benefited from it to a certain extent, and its relatively stable trade and production environment has attracted domestic and foreign investment attention. On March 18, 2022, the Ministry of International Trade and Industry of Malaysia announced that the terms of the Regional Comprehensive Economic Partnership (RCEP) have officially entered into force in Malaysia, further promoting the growth of Malaysia’s import and export trade. On April 1, 2022, Prime Minister Ismail officially announced the reopening of the border after the two-year-long epidemic movement control order closed the border, which also marked the full restart of Malaysia’s tourism industry. Thanks to strong international demand for Malaysia’s electrical and electronic products, petroleum products, liquefied natural gas, and palm oil and palm oil products, Malaysia’s June exports increased by 38.8% year-on-year to RM146.16 billion, higher than the market forecast of 21.2%. Both private investment and public investment are up. Malaysia’s Ministry of International Trade and Industry pointed out that June’s total trade, exports and imports all hit record highs. It is not difficult to see that the economic growth of Malaysia has benefited from the strong import and export income of the international market.
Against the backdrop that the global economy has been hit hard by the new crown epidemic, the global economic growth has slowed down, and the Malaysian economic miracle that has gone upstream has attracted worldwide attention. Among them, the release of domestic demand, government financial support, and strong exports have become the main reasons for the substantial growth of Malaysia’s economy in the first half of this year. Looking ahead, the Bank Negara Malaysia believes that although Malaysia’s foreign trade growth may slow down, Malaysia’s full-year GDP growth in 2022 is expected to reach 5.3% to 6.3% due to strong domestic demand. However, with the rebound of the epidemic in Malaysia after opening the country, the inflation rate remains high, the central bank’s continuous interest rate hikes, the potential financial pressure brought by the debt level and other factors still pose risks to economic growth, and the Malaysian economy is still vulnerable to domestic political turmoil, global Weaker-than-expected economic growth, further escalation of geopolitical conflicts such as the Ukrainian military conflict, and consequent worsening supply chain disruptions. In the future, whether the Malaysian government can continue to maintain the outstanding achievements of the Malaysian economy, further promote economic development through structural reforms, and achieve a positive cycle of sustainable economic growth, we will wait and see.