The second quarter 8.9% growth may just as well be a momentary spike, and we have to pin our hope on speedy global recovery for more sustained growth in the coming months.

Bank Negara governor Nor Shamsiah Mohd Yunus announced last Friday that the country’s second quarter GDP expanded by an impressive 8.9% y-o-y on strong domestic demand and exports, including the improved export of electronics and electrical products as a result of depreciating ringgit, in addition to higher palm oil and crude oil prices.

Meanwhile, Asian Development Ban (ADB) was of the view that Malaysia’s robust economic growth during the first half of the year stemmed from strong private consumption and increased government subsidies and assistance.

In late July, ADB adjusted downward Malaysia’s economic growth forecasts for 2022 and 2023 to 5.8% and 5.1% respectively.

ADB pointed out in its Asian Development Outlook (ADO) 2022 that uncertainties and global economic slowdown could haze Malaysia’s economic prospects, while Bank Negara agreed that global slowdown could impact the country’s momentum of recovery, although it maintained its 5.3%-6.3% whole-year growth projection.

Finance minister Tengku Zafrul said in an interview with CNBC on Monday that Malaysia remained upbeat about achieving 5.3% to 6.3% GDP growth for this year due to stronger-than-expected Q2 growth of 8.9% on record trade volume in June and full return of social activities and private consumption following the lifting of MCO restrictions.

In conclusion, the country’s sterling Q2 economic performance could be attributed to higher exports, crude oil and CPO prices as well as strong domestic demands. That said, follow-up development may not be that rosy, as oil prices begin to decline and spiraling inflation suppresses domestic consumption.

Prime minister Ismail Sabri Yaakob said on Sunday that the encouraging Q2 GDP growth was the best evidence to rebut accusations by the opposition against the government’s policies.

He said Malaysia’s economic performance was way better than many countries, including Singapore (4.4%), Indonesia (5.4%), the Philippines (7.4%), the United States (1.6%), the EU (4.0%), China (0.4%) and South Korea (2.9%).

But to us, this may not be a boon, for the simple reason that China, the US, Singapore and EU are all our major trading partners and their lackluster performance could impact Malaysia’s economic development for the rest of the year because changes in the external environment are beyond our control.

Tengku Zafrul is also concerned about the slowing global economy, and he predicted that the country’s economic outlook for next year would be even more challenging, especially in view of the significantly slowed down economy of our largest trading partner China, as well as the Federal Reserve’s monetary tightening policy to tame inflation.

Malaysia’s trade with China topped US$176.8 billion (approximately RM780 billion) last year, up a whopping 34.5% compared to the previous year. When China’s economy slows, so will its imports and this will have a direct bearing on Malaysia’s economy. The same goes for our other major trading partners such as the US and Singapore.

Well, domestic demands have surged strongly after the government lifted the MCO restrictions. However, we have to attribute this partly to the government’s generous subsidies on food and fuels aimed at capping price hikes. As such, we have managed to contain the inflation rate compared to 7% to 9% of inflation in most countries.

This nevertheless means that the government has to fork out huge amounts of money to keep prices steady. Government subsidies are expected to rise to RM80 billion this year, far above the RM31 billion estimated earlier this year!

Ringgit depreciation has bolstered exports but is a bane for imports, and given the recent decline in oil and palm oil prices, the robust domestic consumption may not be sustained. Besides, the government will have to continue to pay hefty sums of subsidies to keep prices in check while slowing global economy does not augur well for Malaysia’s exports.

In view of this, the second quarter 8.9% growth may just as well be a momentary spike, and we have to pin our hope on speedy global economic recovery for more sustained growth in the coming months.