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PETALING JAYA: Malaysia’s gross domestic product (GDP) growth is projected at 6.2% in 2022, buoyed by its vaccination accomplishments, sustained external demand and a pick-up in domestic demand, according to Standard Chartered’s Asean and South Asia chief economist, Edward Lee.

He noted that the country’s growth last year was clearly disrupted as Malaysia’s GDP expansion is estimated to be 14% behind the projected trend in the third quarter.

Lee said the disruption translates into an extremely favourable base effect, hence the 6.2% growth projection for 2022.

Nonetheless, he lauded the country’s vaccination success that currently exceeds 78% of the population, which translates into a sustainable and confident economic reopening.

In regard to external demand, the chief economist believes that Malaysia stands among the economies that have benefited strongly from the supply side disruption, which will serve as another growth driver in 2022.

“FDI interest is really very strong, as you can see from the numbers particularly in electric & electronics (E&E) sector,” Lee told the media during Standard Chartered’s H1 2022 Global & Malaysia Outlook “Still Battling Headwinds” yesterday.

He pointed out the domestic supply chain has been highly efficient in the face of disruption over the last two to three years, not only from the pandemic but also from the US-China geopolitical risk which has spurred the quest from alternative supply side production sites.

On the flip side, Lee expects domestic demand to play catch-up to the strong performance demonstrated by external demand in 2021, be it from production or trade.

He opines that there is still more to do although labour participation and the unemployment rate have improved, as the latter remains above the pre-pandemic level.

“Real wage growth has also been somewhat slow but probably it’ll play catch-up through the years.”

On the whole, he said, global reopening should sustain external demand and domestic demand should pick up on better job prospects and wage outlook.

However, Lee holds a cautious view on a rebound in tourism, noting that it depends on the reopening of international borders.

Conversely, he conceded the emergence of a disruptive Covid-19 variant would be a key downside risk to growth for the Malaysian and global economies.

“Our key assumption is a smoother year in terms of Covid-19 situation. Quite clearly if there’s a very disruptive variant, the message is clear, it still poses the largest downside risk to everyone’s growth outlook.”

Apart from that, Lee sees persistent longer-than-expected inflation as another downside risk as central banks would struggle with a balancing act, particularly in advanced economies such as the United States, which have to tighten faster due to inflation. which would have implications on global financial conditions even as the Asean region tries to keep interest rates low.

He pointed out that this risk is very much evident at the moment, as his team expects two rate increases from the US Federal Reserve, a 25-basis point (bps) hike in March and another in September to tackle the rise in the core price index excluding food and energy. There is also a risk of more rate increases based on the Fed’s messaging.

Goldman Sach recently projected four 25bps rate increases by the Fed this year on labour market data and inflation targets.

Last month, the Bank of England emerged as the first major central bank to raise borrowing costs, lifting its key rate by 15bps, on inflation concerns.


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