Opinions between economists at the International Monetary Fund (“IMF”) are divided over Malaysia’s growth prospects for this year. The IMF has cut its year-on-year gross domestic product (GDP) growth forecast for Malaysia to 5.1% in 2022 — down from 5.6% previously — as it warns of further downside risks for the global economy. The IMF’s latest forecast is lower than Bank Negara Malaysia (BNM)’s projected GDP growth range of 5.3%-6.3% for 2022.
In a contrast, S&P Global Market Intelligence is projecting a strong pick up in the country’s economic growth of 7% this year — an upward revision from 6.1% previously.
S&P Global Market Intelligence’s bullish view on the local economy is mainly due to the strengthening domestic demand, strong exports, as well as the reopening of international borders.
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Nevertheless, in its latest World Economic Outlook Update published on Tuesday (July 26), the IMF insisted that the risks to global economic outlook are “overwhelmingly tilted to the downside. This has taken into consideration risks arising from the Russia-Ukraine war, inflation globally, the tight labour market and monetary policies, potential debt distress in emerging markets, the property sector crisis in China and geopolitical fragmentation, which could impede global trade and cooperation.
With increasing prices continuing to squeeze living standards worldwide, the IMF said taming inflation should be the first priority for policymakers.
The IMF opined that targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the Covid-19 pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending.
Meanwhile, S&P Global Market Intelligence chief economist for Asia-Pacific Rajiv Biswas highlighted that the Malaysian economy had staged a recovery in the first half of the year, after a significant economic disruption due to the Covid-19 waves.
Although global economic growth is expected to moderate, a global recession is not currently projected in the baseline scenario for 2022, Rajiv said. Global real GDP growth is expected to slow to 2.7% in 2022 and 2.6% in 2023, the economist noted.
Rajiv further said that BNM is expected to embark on a gradual path to normalise its monetary policy settings by further withdrawing the degree of monetary accommodation as the economic recovery continues.
In all of the above, many (economists) have not accounted for the lack of labour in manufacturing, construction and plantation. It is estimated that the shortage is 1.2 million workers. That is the crux for production and hence GDP. Then the inflationary effects are on us – BNM refuses to be aggressive on rate hike, because we want to balance growth. Hang growth! Fix inflation and don’t start on “demand-pull” and “cost-push” issues. We did massive stimulus packages (because of Covid) and it is a monetary phenomenon. So, please increase OPR by 1% and keep a differential with the Fed Fund rate or we will end-up with RM5 to the dollar! That will further spike imported inflation – net food bill is RM55-60 billion a year. That’s why consumers and the B40 (or B60) will feel the pain more than the elite!
Reference:
Contrasting view on Malaysia’s growth prospects, Chester Tay and Syafiqah Salim, TheEdge CEO Morning Brief, July 28, 2022
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