Malaysia/Philippines: 2H22 growth and rate hike outlook

We recalibrate our Malaysia and Philippines 2022 growth forecasts, following the surprise in 2Q22 GDP data.
Group Research, Chua Han Teng15 Aug 2022
  • Malaysia sees positive growth prospect on domestic resiliency, but external headwinds are brewing
  • The Philippines finds growth cooling as rising inflation hurts household spending
  • Implication for GDP forecasts: Raise and trim Malaysia and Philippines 2022 GDP projections
  • Implication for policy rate forecasts: Further tightening towards pre-pandemic levels in 2H22
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Below is a summary; for the detailed charts and full report, please download the PDF

2Q22 national accounts releases for both Malaysia and the Philippines came with their surprises, with the former to the upside and the latter to the downside. We are moving our 2022 forecasts in similar directions to account for the surprises. 

Regarding Malaysia, we raise our 2022 growth forecast to 7.2% (from 5.5%; vs the central bank’s 5.3%-6.3% range). This considers the jump in 2Q22, sustained domestic drivers in 2H22 (also helped by favourable base effects in 3Q22), and global external headwinds. We assume growth of 7.4% in 2H22. 

For Philippines, we trim our 2022 growth forecast to 7.0% (from 7.5%; vs the government’s 6.5% - 7.5% range). This reflects the deceleration in 2Q22 and rising cost headwinds in 2H22, assuming a moderation to pre-pandemic expansion of ~6.2%.

Malaysia: Malaysia’s economic growth accelerated significantly in 2Q22, beating expectations by a wide margin. Real GDP growth jumped to 8.9% YoY, the fastest since 2Q21, from 5.0% in 1Q22. 1H22 expansion registered at an impressive 6.9%. We think Malaysia’s 2H22 outlook will likely be encouraging, but not without downside risks. Domestic demand tailwinds from economic opening, pent-up demand, improving disposable incomes, investment activity, coupled with favourable base effects in 3Q22 due to last year’s Full Movement Control Order, are all positive drivers. This would negate rising domestic costs and global economic headwinds.

Philippines: Philippines’ economic recovery momentum waned in 2Q22 and underperformed expectations. Real GDP growth cooled to 7.4% YoY from 8.2% in 1Q22, bringing the 1H22 expansion to 7.8%. Even though 1H22 expansion of 7.8% YoY was still relatively strong and higher than the pre-pandemic trend of ~6.2%, we think 2H22 will likely be tougher. The domestically-driven economy will continue to face headwinds from high inflation that will curb discretionary spending. Households’ balance sheets have significantly improved from the crisis, but gains from pent-up demand driven by economic opening will start to dissipate. Higher borrowing costs from monetary tightening would feed through the economy. Encouragingly, the Philippines is less exposed to downside risks from a global economic slowdown via the goods trade channel.

More monetary policy normalisation ahead

We expect the central banks of Malaysia and the Philippines to continue normalising monetary policy through the remainder of 2022, given upside inflation risks and comfort with decent economic growth.

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Chua Han Teng, CFA


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