Malaysian economy on the move amid challenges
ZAIDI ISMAIL30 Mar 2023 10:33am
Property recovery is slow as expected due to higher interest rates and higher housing prices as building materials like steel and cement spiked exacerbated by the lack of foreign labour.
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SHAH ALAM - Malaysia's economy is headed for a positive yet cautious outlook for 2023 with a gross domestic product (GDP) forecast of between 4 to 5 percent after a strong recovery recorded in 2022.
Associate Professor Aimi Zulhazmi Abdul Rashid said the gloomy GDP outlook of the global economy is estimated by the World Bank to be at only 1.7 percent this year with high inflationary rates.
"But the global economy will be even more challenging with the banking crisis in the US and Europe," Aimi told Sinar Daily.
The University Kuala Lumpur Economics School professor was commenting on Bank Negara Malaysia's Financial Stability Report for the second half of 2022.
Domestic economy to support growth
The domestic economy is expected to be the country's engine of growth for this year as the export increases and trade surpluses are lower than earlier projections.
"With inflation rate expected to hover at around 3 to 4 percent this year, hence the economy is still under control.
But the question is whether the interest rates will continue to be increased after the last 4 consecutive rates increment last year of 0.25 percent each.
"If the inflation is under control, there are chances that Bank Negara will recommend the interest rates or overnight policy rates or OPR to be maintained at 2.75 percent to help the domestic economy to be the engine of growth.
Tourism sector still sluggish
Even with all the economic sectors open, some are not at the pre-pandemic level.
The tourism industry for example counted on the re-opening of the China economy which is set to be the saviour with millions of Chinese tourists flocking into Malaysia.
However the re-opening is slower than expected.
BRICS issue not addressed by Bank Negara
One important issue not addressed by Bank Negara is the ongoing BRICS vs US and the G7 group.
BRICS or Brazil, Russia, India and China is now joined by Saudi Arabia, Bangladesh and Argentina and they are collectively trading with each other by using their respective currencies plus gold and not the US dollar.
Property market recovering albeit slowly
The country's property market continues to improve.
However, recovery is as slow as expected due to higher interest rates and higher housing prices as building materials like steel and cement spiked exacerbated by the lack of foreign labour.
Hence the outlook for the property industry continues to overcast, said Aimi.
Hence the numbers of unsold units are still lingering at above 150,000 houses albeit lower than the peak of 184,000 houses in the fourth quarter of 2021.
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Ringgit rally is over, will be volatile?
After a good run, the value of the ringgit compared to the US dollar is expected to be volatile due to the equally volatile US economic outlook especially the US Federal Reserve persistence in raising interest rates even though the existing rates of 4.75-5 percent is already threatening the US economy to spiral into recession.
Aimi said even the closure of the 3 banks and the risk of other banks collapsing too would not stop the Federal Reserve to continue it's mission to tame the inflationary rates.
Meanwhile, Bank Muamalat Malaysia Berhad chief economist and social finance Dr Mohd Afzanizam Abdul Rashid said generally speaking, the growth and inflation projection was pretty much in line with the Ministry of Finance's forecast.
"The risks are balanced with the anchor of economic growth stemming from consumer spending and private investment.
The issues surrounding the banking crisis in the US and Europe should not be systemic and Malaysian banks are well capitalised and highly liquid coupled with robust risk management practices.
"I think it begs the question on whether the OPR is going to be higher or stick at the prevailing level.
My sense is that, another 25 basis percentage point hike in OPR by Bank Negara is quite likely this year.
"This is based on our observation on the strength of the Malaysian domestic economy combined with full employement condition.
Speaking to Sinar Daily, Afzanizam said Bank Negara does give any caveats as their decision on OPR will be data dependant.
"I guess we shall see how the year would progress as the central bank would need to ascertain clearly on the state of our economy before making any decisions.
