Is Malaysia’s stronger than expected 2022 2nd quarter growth of 8.9% due to the extraordinary increase in private sector consumption and investment of 18.3% and 6.3% respectively following the one-off Employees Provident Fund (EPF) special withdrawals of RM10,000 disbursed in April 2022? If so, then growth for the 3rd and 4th quarter may not be so robust since the effect from expenditure of the RM10,000 one-off EPF special withdrawals amounting to RM44 billion would have greatly dissipated.
Since 2020, the government has announced three special EPF withdrawal schemes – i-Lestari, i-Sinar and i-Citra – with a total of RM101 billion withdrawn by EPF members. The one-off RM10,000 one-off EPF special withdrawals commenced on 18 April 2022 amounted to RM44 billion. Coupled with RM10 billion drawdown from the employee share statutory contribution rate reduction programme, a total of RM155 billion was withdrawn from EPF during the past 27 months.
As primary drivers of economic growth, private sector consumption and investment only grew by 5.5% and 0.4% in the 1st quarter of 2022. If the RM44 billion from the RM10,000 one-off special EPF withdrawal did not generate the 18.3% jump in private sector consumption for the second quarter, Bank Negara should determine the source of the increase. This is necessary to see whether the 18.3% private sector consumption increase can be replicated for the third and fourth quarter to enable Malaysia to continue enjoying robust economic growth.
Bank Negara had conceded that the 2nd quarter GDP growth was lifted up to some extent by the low base from the Full Movement Control Order (FMCO) in June 2021. This may explain why GDP spurted by a 16.5% growth in June 2022 as compared to June 2021, whereas GDP growth for April and May 2022 was more evenly sustained at 5.6% and 5% respectively.
To sustain robust economic growth, it is crucial that Bank Negara stop hiking up interest rates.
Despite Malaysia’s GDP growing for the first half of 2022 by 6.9%, this is not reflected in the performance of Bursa Malaysia and in the value of the ringgit. The ringgit continues to decline against the Singapore dollar falling to the lowest value on record of RM3.25 on 11 August, falling to a 5-year low to the US dollar at RM4.46, and has even weakened against the Indonesian rupiah.
Despite high oil and palm oil prices, the ringgit continues to depreciate when it should be strengthening. Bank Negara’s increase in interest rates by 50 basis points has no discernible effect. The weak ringgit has wreaked havoc for businessmen with rising prices for imported materials.
There is concern on whether Malaysia’s 2nd quarter economic growth is too reliant on firm domestic demand, particularly the RM44 billion one-off EPF special withdrawals. Since there will be no more RM44 billion one-off EPF special withdrawals in the pipeline, Malaysia’s economic growth will depend on external demand, which is subject to slower global growth.
Whilst the government continues to express optimism that Malaysia can achieve the 2022 projected economic growth of up to 6.3%, this sentiment is not shared by the International Monetary Fund which lowered its growth target of Malaysia to at best 5.6% for 2022. To sustain robust economic growth, Bank Negara should stop hiking interest rates, which has increasingly burdened businesses and housing loan borrowers.