KUALA LUMPUR (Jan 11): Malaysia is expected to experience gross domestic development (GDP) growth of 6.2% in 2022, up from 3.5% in 2021, as the immunization program has brought the economy back to normal. growing trend, Standard Chartered said. Bank Malaysia Bhd (StanChart).
At StanChart’s 2022 market outlook press conference on Tuesday, January 11, the group’s chief economist for ASEAN Edward Lee Wee Kok said Malaysia’s GDP growth remained at 6% lower than the fourth quarter 2019 GDP growth of 3.6%.
Lee also expects Bank Negara Malaysia (BNM) to begin tightening monetary policy in the third quarter of 2022 (3Q22) by raising the overnight key rate (OPR), currently at 1.75%.
Lee predicted that two 25 basis point (bps) increases will take place in 3Q22, followed by another 25 basis point increase in 4Q22, bringing the OPR to 2.5% by the end of 2022.
He said the BNM will refrain from tightening in the first half (1H22) as the economic recovery continues, despite the consumer price index (CPI) rising nearly 3% year-on-year in 4Q21 .
Lee also said ongoing supply chain disruptions and rising energy prices pose an upside risk to inflation, but expects the CPI to be below 2% by the end of 2022.
Outlook for the Malaysian Ringgit Remains Relatively ‘Neutral’ Despite Growing Demand for Foreign Currencies and Equities
Divya Devesh, Asia’s foreign exchange (FX) strategist at StanChart, said the bank has a relatively “neutral” view of the ringgit.
“In terms of forecast, for mid-2022 (1H22) [end-June], we have the ringgit dollar at RM 4.20 which is relatively close to where the ringgit is trading today. We expect it to be relatively stable in the first half of the year.
“In the second semester (2H22) [end-December], we have the ringgit dollar going to RM 4.15, a modest appreciation of the ringgit in 2H22 but 1H22 is as flat as it gets, ”Devesh added.
Devesh pointed out that commodity prices – which have seen strong growth over the past 18 months – have been the main factor positively contributing to Malaysia’s export performance, especially in the trade balance which has improved significantly for reach around RM 25 billion at the end of September 2021, as well as the current account balance, which is expected to show a surplus of 3.2% by the end of 2022.
“Essentially, this is a commodity-driven improvement in trading and the current account balance, which provides tremendous support to the Malaysian ringgit,” Devesh said.
In addition to commodities, the rise in foreign direct investment (FDI) in Malaysia and the travel sector, which Devesh expects to recover in 2H22 depending on the Covid-19 situation, will support the Malaysian economy and the ringgit.
However, Devesh warned that the increased appetite of Malaysian residents for foreign currency assets, which stood at around $ 40 billion at the end of July 2021, may offset some of the improvements in Malaysia’s current accounts.
“What we’re seeing in terms of the balance of payments data, there is a pickup in demand for things like foreign currency deposits and foreign stocks.
“Now this is not specific to Malaysia, we are also seeing this increased appetite for foreign assets in a number of other countries.
“It may be a by-product of Covid-19 and the uncertainty it has brought into our lives, perhaps as a precaution, residents are looking to hold foreign currency,” Devesh said.
Omicron variant remains a major risk for Malaysia
Lee said if StanChart’s forecast had been made in late November 2021, the impact of the flood disaster that hit several states, including the Greater Klang Valley, is estimated to be around 0.3% to 0.5%. for the country’s GDP, but it still expects growth in 2021 to stay above 3%.
“For 2022, I certainly think the Omicron is the center of attention. Now the floods [in December 2021] would see reinvestments begin in 2022, assuming the floods do not recur in 2022, they actually provide some benefit to growth in 2022.
“The main downside risk for the Malaysian economy in 2022, more so, comes from the Omicron variant, as the main assumption is that the Covid-19 situation is much more fluid this year.
“I think it’s hard to extrapolate what’s going to happen this year, [but] what has been shown is that many governments are much more tolerant in more and more countries around the world, especially in this region, ”adds Lee.
Lee also stressed that the focus should be on getting more people back to work and creating jobs so that they are able to service their debt according to their needs. the impact of Malaysian household debt on the fiscal position.
