Recovery momentum to continue this year
Country on track to meet 5.3% to 6.3% GDP forecast
“Malaysia’s inflation is expected to range between 2.2% and 3.2% (2021: 2.5%) this year, in line with the IMF’S forecast of 3%, the lowest among Asean countries.”
Tengku Datuk Seri Zafrul Abdul Aziz
KUALA LUMPUR: The Malaysian economy is expected to maintain its recovery momentum in 2022, as the transition to the endemic phase as well as the reopening of international borders will increase tourist arrivals and improve trade and business activities, resulting in a strong growth in the services sector.
Furthermore, the RM10,000 special withdrawal from the Employees’ Provident Fund and Bantuan Keluarga Malaysia payments are expected to boost private consumption and help the economy recover further, said Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz.
“The expansionary Budget 2022 and the resumption of projects with high multiplier effects will help to sustain growth, which will be supported by the implementation of development programmes under the 12th Malaysian Plan.
“Together with strong external demand from major trading partners, the economy is on track to meet the 5.3% to 6.3% gross domestic product (GDP) growth forecast in 2022,” he said in a statement on the performance of the economy in the first quarter.
Zafrul said the government is cautious of potential downside risks to growth posed by recent global events.
He said geopolitical tensions have caused economic pressures on multiple fronts, most notably an increase in global inflation as commodity prices continue to rise.
The International Monetary Fund (IMF) has forecast inflation to rise by 5.7% in advanced economies and 8.7% in emerging market and developing economies.
“Malaysia’s inflation is expected to range between 2.2% and 3.2% (2021: 2.5%) this year, in line with the IMF’S forecast of 3%, the lowest among Asean countries,” said Zafrul.
“If global developments continue to affect investment and global trade, supply chains will be impacted further, potentially disrupting Malaysia’s economic recovery momentum, given that we are an open economy with total trade accounting for about 120% of GDP.
“Furthermore, the sharp rise in inflationary pressures, particularly in the United States, has prompted several central banks to raise policy rates at a faster pace, potentially leading to tighter global financial conditions. Commodity and food price increases as well as labour shortages may limit Malaysia’s growth potential,” he added.
Moving forward, Zafrul said the government and its relevant agencies will continue to monitor various economic risks and ensure that its policy decisions can effectively manage any external shocks that may affect the overall well-being of the people and businesses.
“The government’s medium-term priority is to implement structural reforms that will boost the country’s economic potential, resilience and prospects, as well as make Malaysia a more attractive investment destination. Overall, this will promote more sustainable and inclusive economic growth for all,” he said.
Malaysia’s economy grew by 5% in the first quarter of 2022 (1Q22), supported by increases in both domestic and external demand as well as labour market recovery.
“All of this was attributed to the government’s consistent policy support, particularly initiatives under an expansionary Budget 2022, which have been in full swing since the start of the year, as well as the spillover effect from Budget 2021 and previous stimulus and assistance packages,” said Zafrul.
In the first quarter, monthly GDP grew by 4.3% in January, 5.2% in February and 5.4% in March.
The labour market showed the unemployment rate at 4.1%, a 0.2-percentage-point improvement compared with the previous quarter, attributed to the implementation of wage subsidy programmes worth more than Rm20bil and successful job creation initiatives such as Janakerja and Jaminkerja, he said.
The unemployment rate is expected to fall further in the coming months as government assistance continues and business prospects improve.
There was also increased business optimism, in line with strong private consumption with the Malaysian Institute of Economic Research’s Consumer Sentiment Index rising to 108.9 points in 1Q22 (4Q21: 97.2 points), while the Statistic Department’s Business Tendency Statistics showed a 7.6% confidence indicator (4Q21: minus 0.3%).
“Overall, this was reflected in strong manufacturing sales, which increased by 13.9% to Rm144.6bil in March 2022, as well as wholesale and retail trade sales, which increased 9.8% to Rm123.8bil.”
Total trade rose 23.6% to Rm624.9bil during the first quarter while net foreign direct investment (FDI) increased to Rm24.4bil (4Q21: Rm18.4bil).
Outstanding household loans increased by 4.8% (4Q21: 4.2%), which is in line with the 12.7% increase in loan disbursements (4Q21: 9.5%), outpacing the 3.3% increase in loan repayments (4Q21: minus 4.6%).
OCBC said Malaysia’s 1Q GDP growth rate of 5% was ahead of market expectations and the key factor in the outperformance was the recovery in the domestic consumption, bolstered by labour market normalisation.
“Such a strong showing for domestic growth driver is encouraging, although the effect on the balance of payments deserves a closer watch in an environment of global volatility. Partly because of stronger imports to fulfill the domestic needs, the current account surplus has thinned to 0.7% of GDP,” it said in a note on the first-quarter performance.