KUALA LUMPUR: RHB Investment Bank Bhd (RHB IB) has revised upwards Malaysia’s 2022 gross domestic product (GDP) forecast to six per cent year-on-year (y-o-y) from 5.3 per cent y-o-y previously due to stronger-than-anticipated inventory build-up and net exports in the second quarter 2022 (Q2 2022).

However, the 2022 GDP forecast is still lower than Bloomberg’s consensus estimate of 6.6 per cent.

In a research note released today, RHB IB said it expected the GDP growth to slow to around 5.1 per cent in the second half of 2022 (2H2022) from 6.9 per cent in 1H2022 mainly driven by private consumption albeit at a slower pace due to elevated inflation and labour shortages.

"Lifted partly by a low base in Q3 2021 and tailwinds from loose fiscal and monetary policy in 1H2022, Q3 2022 GDP growth is likely to sustain at around 8.7 per cent y-o-y versus 8.9 per cent y-o-y in Q2 2022 followed by 1.9 per cent y-o-y in Q4 2022 as low base effects wear out, external conditions weaken and much of the tailwinds from loose fiscal and monetary policy dissipate,” it said.

The investment bank said it has downgraded its 2022 private consumption forecast to 9.3 per cent y-o-y from 10.7 per cent y-o-y due to high inflationary pressures and labour market shortages in 2H2022.

"The downgrade to our 2022 private consumption growth is mainly due to our view that inflation will remain elevated in 2H2022 with the likelihood that consumer price index (CPI) inflation could print 4.5 to five per cent by September.

"We expect July headline CPI inflation to print around 4.5 per cent y-o-y versus the Bloomberg consensus estimate of 4.4 per cent,” it said.

RHB IB said it also expected labour supply to remain tight in the services sector, hence, constraining the output of consumption-related activity to this sector in the next few months.

"We do not expect a significant weakening of labour market conditions in 2H2022, any potential weakening of labour market conditions will be in 1H2023,” it said.

Meanwhile, the investment bank said it continued to expect Bank Negara Malaysia (BNM) to increase the overnight policy rate (OPR) by 25 basis points (bps) to 2.5 per cent at the September 8 Monetary Policy Committee (MPC) meeting with the balance of risks tilted towards another hike at the next MPC meeting on November 3.

"Our 2023’s OPR forecast is three per cent,” it said.

In other policy developments, RHB IB said no significant changes in the fuel and food subsidy programmes are expected in 2022 based on its recent channel checks and the probability of an electricity tariff increase for Tenaga Nasional Bhd in 2022 is also low. - Bernama