Let’s start with the facts. The quarterly GDP growth numbers have been uneven since the Covid-19 pandemic (see Chart 1). The economy contracted sharply at the outset of the pandemic, falling 16.9% y-o-y in 2Q2020. Growth stayed negative in 2H2020 and was volatile in subsequent quarters — for instance, rebounding 16.3% in 2Q2021 but contracting again in the next quarter (3Q2021) — due to the many phases of movement control orders and partial reopening of the economy. The pandemic also caused huge volatility in commodity and goods prices, the result of supply chain disruptions and uncoordinated economic reopening among countries in the world that was exacerbated by the Russia-Ukraine war. The cumulative impact of all the above complicates any simple y-o-y comparisons because of the big swings and base effects. And that muddies the economic picture.
The Malaysian economy picked up momentum in 1Q2024, registering a 4.2% year-on-year (y-o-y) growth compared with the average of about 2.9% in the preceding three quarters, and higher than market expectations. Bank Negara Malaysia explained that the higher gross domestic product (GDP) growth was driven by stronger private expenditure and positive turnaround in exports. Advance estimates from the De- partment of Statistics Malaysia also paint a brighter outlook — forecasting growth at an even stronger 5.8% in 2Q2024. (By the time this article is published, we would also have the official 2Q2024 GDP growth figures, which were scheduled for release on Aug 16).
On the back of these better-than-expected numbers, most analysts and economists are upbeat on Malaysia’s economic outlook, supported by what is seen to be positive trends in the country’s reform and pro-growth policies. But oftentimes, headline numbers alone don’t tell the whole story — and relying on them can lead to wrong decisions with negative consequences. That being the case, we decided to deconstruct the GDP growth numbers and figure out what drove the Malaysian economy in the past few quarters. That should give us a better idea as to whether the improved headline statistics are on solid ground and, therefore, sustainable.
