Endemic stage spells the start of economic recovery
WITH the further easing of restrictions and the recent reopening of its international borders, Malaysia has finally entered its endemic stage.
Despite the ongoing macro uncertainties, the economy is expected to stage a more concrete recovery compared with previous years, plagued by uncertainties brought on by the pandemic.
“For Malaysia, the pace of economic recovery is projected to gather further momentum amid the reopening of the economy and international borders. While we are not yet out of the woods, we are better prepared now.
“The better Covid-19 management and higher vaccination rates will help mitigate the adverse impact from future resurgences and thus protect our healthcare system from being overwhelmed.
“With these factors in mind, we expect less disruption to economic activity and spending in the event of resurgences.
“As an open economy, Malaysia will continue to benefit from the expansion in global demand, which would support both investment activity and the labour market.
“Overall, for 2022, growth is expected to expand between 5.3 and 6.3 per cent,” Bank Negara Malaysia (BNM) Governor Tan Sri Nor Shamsiah Mohd Yunus said in BNM’s recently released Annual Report.
For the Malaysian economy, BNM expects recovery to gain momentum in 2022 underpinned by several factors including continued expansion in external demand, full uplifting of containment measures, reopening of international borders, and further improvement in labour market conditions.
In addition, the implementation of investment projects and targeted policy measures will provide further support to economic activity and aggregate demand.
“Developments surrounding Covid-19 remain key in influencing Malaysia’s growth trajectory in 2022, particularly in the shift towards a more calibrated and proportionate approach to managing the domestic epidemic situation.
“After enduring the Covid19 pandemic for two years, the government, businesses, and healthcare system are now more adept at managing the spread of the virus.
“Under the National Covid19 Immunisation Programme, Malaysia has achieved high vaccination rates and swiftly rolled out booster doses, which has helped to lower hospitalisations and severity of infections,” it said.
It also pointed out that the promising recent discoveries of antiviral drugs and treatments for severe Covid-19 cases would also contribute to lowering hospitalisations and deaths due to infections going forward.
“Therefore, where capacity of the national healthcare system remains sufficient, the government has reaffirmed its position to avoid impositions of nationwide lockdowns and strict containment measures.”
Echoing this sentiment, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) said, it believed the recovery in the domestic economic activities will continue as both consumers and businesses will increase their spending in view of a better outlook.
“In addition, Malaysia will benefit on the external front due to solid global demand coupled with soaring commodity prices,” it added.
Boost from border reopening
With Malaysia shifting into the endemic phase in the second quarter of 2022 (2Q22), international borders reopening is among the significant catalysts in the second quarter onwards.
“We believe Malaysia is very unlikely to face a nationwide lockdown this year. Looking at Malaysia’s Covid-19 trends, close to 80 per cent of the population already received two doses of vaccines, while almost 50 per cent of the population received their booster jabs.
“Even with the arrival of Omicron-variant, confirmed new daily cases reached its peak in early March 2022 and started to trend lower.
“The stress on the public health system was generally manageable, with the hospitalisation rate already on a declining trend and ICU rate plateaued at 35 to 38 per cent in March 2022.
“Thanks to high vaccination rate, Malaysia’s hospitalisation and ICU rates are relatively lower during the Omicronvariant period as compared to the Delta-variant period last year,” it said.
On the external front, the research team noted that the pace of growth for both exports and imports in January to February 2022 has been stronger than projected.
“As a result, we revise our growth projection higher for both exports and imports to 7.8 and 9.6 per cent, respectively, for 2022. After strong growth last year, we opine that the growth rate will moderate this year due to the diminishing low-base effect.
“Overall, we expect growing foreign demand for E&E and commodities, especially palm oil and oil & gas, will support expansion in exports in the coming months.
“In addition, Malaysia stands to benefit from high commodity prices and further economic reopening in Malaysia and other countries,” it said.
However, it cautioned that the risks of prolonged supply chain disruptions following the reimposition of lockdown in China and the war in Ukraine could constrain global production and trade activity.
“Moreover, the outlook for external demand could also be weighed down by elevated inflation given the high prices of energy and other commodities,” it added.
Nevertheless, according to BNM, domestic-specific factors, such as higher production from new manufacturing and mining facilities, expansion in existing facilities, and continued progress of large infrastructure projects, are expected to drive the recovery in overall economic activity.
“The reopening of international borders and resumption in international travel activity would lend further support to the rebound in consumer-facing and tourismrelated sectors,” it said.
Counting on private consumption
A stronger recovery in private sector expenditure is also expected to be the main driver of growth amid the full lifting of containment measures.
“Private consumption is expected to record a growth of 9.0 per cent this year – compared to 1.9 per cent in 2021 – as household spending will be primarily supported by recovery in income and employment.
“Consumer confidence is also expected to improve as vaccinations progress and containment measures are fully eased, leading to some materialisation of pentup demand. Nevertheless, this is contingent upon the developments in the domestic epidemic situation,” BNM said.
More importantly, policy support for households and businesses remains in place to facilitate the recovery momentum, albeit more targeted in nature, to assist vulnerable segments that were significantly affected by Covid-19.
Support from the 2022 Budget measures from various cash transfers, targeted wage subsidies, and targeted loan repayment assistance will also continue to provide further impetus to the economic recovery.
Allocations for the Bantuan Keluarga Malaysia, EPF-related measures and tax reliefs will also provide some support to household spending,” BNM highlighted.
For businesses, vulnerable sectors such as tourism-related industries and agriculture would benefit from the wage subsidy programme and numerous targeted grants, it added.
Despite the growing optimism on Malaysia’s economic recovery, BNM cautioned that given the rapidly-evolving macroeconomic environment, risks to the domestic growth projection remain tilted to the downside.
“Downside risks stem mainly from the developments surrounding Covid-19, such as the emergence of severe and vaccine-resistant VOCs which could lead to potential reimpositions of broad-based containment measures.
“Other domestic factors that could affect the recovery path include slower-than-expected rollout of public infrastructure projects, more persistent labour shortages and supply chain disruptions, as well as higherthan-expected inflation which would reduce disposable income and adversely affect consumer sentiments.
“On the external front, worsening supply chain disruptions and heightened volatility leading to disorderly financial conditions could significantly affect Malaysia’s growth and trade outlook.
“Additionally, prolonged and further escalation of the geopolitical tensions, particularly the military conflict in Ukraine, represents a key risk to the Malaysian economy as well, emanating from its impact to global growth and trade, prices, and financial market volatility.”
For Malaysia, the pace of economic recovery is projected to gather further momentum amid the reopening of the economy and international borders. While we are not yet out of the woods, we are better prepared now.
— Tan Sri Nor Shamsiah Mohd Yunus, BNM Governor