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PETALING JAYA: MARC Ratings Bhd is less upbeat about the momentum of private consumption in the country compared with the scenario envisioned by Bank Negara Malaysia (BNM).

Although MARC’s view on the outlook of the Malaysian economy is generally consistent with those presented by BNM in its Economic and Monetary Review 2021, and shares BNM’s view that the economic recovery would be underpinned by both external and domestic demand, it forecasts private consumption growth to increase to 6.9% in 2022, lower than BNM’s forecast of 9%.

“BNM anticipates a stronger recovery in 2022, with real GDP growth ranging between 5.3% to 6.3% versus MARC Ratings’ forecast of 5.7%,” it said in a statement today.

Malaysia’s economic recovery since the pandemic-induced recession has been moderate and uneven.

“We noticed that real GDP (seasonally adjusted) took eight quarters to return to pre-pandemic levels – a significantly slower recovery than post-2008 Global Financial Crisis (GFC) when it took only five quarters to return to pre-crisis peak.

“GFC resulted in a supply shock while the Covid-19 pandemic is more complex and profound, affecting both the demand and supply side of the economy. Nonetheless, both crises are primarily supply-driven,“ MARC said.

On inflation, BNM foresees the headline Consumer Price Index (CPI) to rise at a faster pace of 2.2% to 3.2% in 2022 (2021: 2.5%) mainly due to cost-push factors because of higher commodity prices and global supply chain disruptions.

“We think that price controls will mitigate inflationary pressures for now. BNM also expects stronger demand conditions to lift core inflation between 2% to 3% (2021: 0.7%). We concur with such forecasts. Headline inflation rate has hovered above the 2% mark since the start of 2022 while core inflation rate rose to near the 2% mark.

“Despite high expectations on inflation, we stand by our assessment that monetary policy will remain accommodative while normalisation will only take place in the second half of 2022,“ MARC said.

MARC deemed BNM’s expectation on labour market conditions would continue to improve, and that unemployment rate would ease to 4% in 2022 (2021: 4.6%).

“To be realistic, signs of encouraging hiring activity have emerged, evidenced by the declining trend in retrenchments and jobless claims. We believe the government’s plan to raise the minimum wage if executed evenly across all sectors and regions would hamper the hiring momentum,“ it said.

The minimum wage hike aims to cushion vulnerable households against cost-push inflation as the economy reopens.

“There should be no exclusions to the new ruling as the minimum wage is intended to protect workers against unduly low pay in the lowest income bracket. If micro and small industries are excluded, as recent official announcements suggest, we foresee no real economic benefits to the new minimum wage level,“ it said.

It noted that the pace of recovery since the pandemic-induced recession is relatively slow, albeit with a significantly larger fiscal size seen in GFC.

“With mobility restrictions in place for too long, more fiscal support is needed for the Malaysian economy to return to full employment. The government has been managing the pandemic situation well, but the policies focusing on promoting future growth are still lacking. It will affect the economy’s fiscal metrics following a recovery. In echoing BNM’s call for structural reforms, we also believe that Malaysia needs new thinking about how to address shocks in the future,“ it said.

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