KUALA LUMPUR: Hong Leong Investment Bank (HLIB) expects Malaysia’s gross domestic product (GDP) growth in the second quarter of 2022 (Q2) to expand by 9.0 per cent year-on-year (y-oy), underpinned by stronger performance in the services, manufacturing and construction sectors.

On the demand front, private consumption will drive overall growth following the reopening of international borders and the release of pent-up demand, HLIB said in a note today.

“The services sector is expected to lift GDP growth in Q2, as reflected by the strong volume index of services showing. Mobility has recovered to pre-pandemic levels alongside the revival of tourism activities, which led to improvements in wholesale & retail trade, food & beverages and accommodation.

“The manufacturing sector is also projected to strengthen following higher production in Q2, supported by both domestic and export-oriented manufacturing sectors, and aided by low base effect,” it said.

The investment bank also expects the construction sector to post a rebound, reflected by the upturn in the value of construction work attributed to the increase in residential and non-residential buildings.

“Meanwhile, we anticipate growth to shrink for the agriculture sector as palm oil production contracted, likely due to low fertiliser applications and acute labour shortage.

“Another quarter of contraction is also expected for the mining sector, following the continued downtrend in mining industrial production index (IPI) as crude petroleum production declined further while natural gas production slowed,” it said.

On the expenditure front, HLIB said Malaysia’s private consumption is expected to accelerate following the reopening of the economy, the Employees Provident Fund (EPF) withdrawal schemes and improved labour market conditions.

It said the positive growth momentum is expected to continue in Q3 supported by the low base effect, the reopening of international borders, transition to endemicity, as well as the EPF special withdrawal scheme.

“We expect growth to slow down in Q4 on the account of lower global demand. Downside risks to growth remain prominent, stemming from further escalation of geopolitical conflicts and a high inflationary environment.

“Concerted efforts by central banks to keep a lid on inflation also risk a sharper slowdown in global growth,” said the bank.

Nevertheless, HLIB maintains its 2022 GDP forecast at 5.9 per cent y-oy and expects Bank Negara Malaysia to raise the overnight policy rate (OPR) by another 25 basis points (bps) in September, bringing the OPR to 2.5 per cent by the end of 2022. - Bernama