Malaysia's economy has 'somewhat come out of the woods' - Economist

27 Jul 2023 10:02am
Photo for Illustration purpose - Bernama
Photo for Illustration purpose - Bernama

KUALA LUMPUR - Prominent economist Anthony Dass believes that Malaysia's economy has "somewhat come out of the woods”, thanks to the clear governance, better confidence from domestic consumers and businesses, and improving engagement with foreign investors and the local business community by Prime Minister Datuk Seri Anwar Ibrahim.

Dass said the cost of living and the ease of doing business had improved slightly.

He said a higher online spending base of RM141.80 was recorded in May 2023 versus a trough of RM77.50 in April 2020, while a decline in the unemployment rate to 3.5 per cent was registered in May 2023 as compared to a peak of 5.3 per cent in May 2020.

Additionally, business loan availability in May 2023 stood at 113 points (base of 100 points in January 2020) as compared to 101.6 points registered in December 2020, he said.

He said the ringgit had also strengthened against the US dollar to the current level of around 4.55 and about 4.24 at end-January 2023 compared to the levels between 4.67 and 4.78 before the 15th General Election held on Nov 19, 2022.

"Now, foreign workers issues are also better," Dass told Bernama when asked to comment on Malaysia's economic outlook after the International Monetary Fund (IMF) revised their projection upward for the 2023 gross domestic product (GDP) growth to three per cent on Tuesday.

The IMF in its latest World Economic Outlook report projected global real GDP growth of three per cent in 2023, up 0.2 percentage point from its April forecast, but left its outlook for 2024 unchanged, also at three per cent.

The global lender also said it was still maintaining its stance that tight global liquidity conditions, following a series of interest rate hikes by the major central banks, would take a toll on growth.

However, Dass noted the external issues would be beyond the country's control given that Malaysia is a small trading nation.

This would include global economic slowdown or recession, capital outflow due to a rise in global risk, the navigation of the Ukraine conflict, China’s economic slowdown and its tactics, supply chain management, changes in global regulation, and cybersecurity.

Besides, he said the current government also faces domestic challenges such as high public debt which it inherited, and limited fiscal space.

"The focus now is to address structural issues to steer the country forward through the current government in the form of unity," he said.

On the other hand, SPI Asset Management managing director Stephen Innes said the rise in the global GDP growth rate is a function of a global downward inflation reset, and this might entail the central banks stopping hiking rates aggressively, providing a better backdrop for growth.

"But even as inflation is currently easing, there has been no significant drop in demand, especially for oil, and it should be positive for Malaysia's oil industry.

"Oil and food prices could firm further on heightened geopolitical risk, while El Nino presents another higher source of food price risk," said Innes.

He opined that as Malaysia's trade is so intrinsically tied to China, the latest message from China's policymakers was encouraging as it represented a straightforward positive adjustment in macro policy stance, particularly on the property markets.

"This is ostensibly positive for Malaysia's GDP. For now, we are not altering any GDP forecasts for Malaysia until China's stimulus comes more firmly into view. But the risk of revision is materially higher rather than lower.

"Food, materials (commodities like palm oil and rubber) and, of course, the oil sector should be the biggest list of beneficiaries (when China’s economy improves)," he added.

Nonetheless, Bank Muamalat Malaysia Bhd chief economist and social finance head Mohd Afzanizam Abdul Rashid sensed that Malaysia is still not out of the woods yet.

He opined that the expectation for a soft landing in the major economies could inject some form of optimism that our country would also mimic a similar path.

"Nonetheless, risks to inflation is still on the upside due to possible re-intensification of the tension in Ukraine and weather-related events which could put upward pressure on prices, especially food.

"This, in turn, could result in central banks maintaining their restrictive monetary stance," he said.

Mohd Afzanizam said slower global growth would have a material effect on Malaysia’s international trade.

"My sense is that our economy would grow slower in the second half of 2023 (2H 2023) due to weaker external demand.

"Therefore, the onus is on domestic demand to achieve the 4.0 per cent to 5.0 per cent growth for 2023," he said.

As such, ensuring an accommodative monetary policy stance is essential to support the economy, and this would be Bank Negara Malaysia’s main premise for the overnight policy rate to remain unchanged at 3.00 per cent this year, he added.

Separately, MIDF Research said Malaysia’s leading index (LI) registered the softest decline in three months at 1.1 per cent year-on-year (y-o-y) in May 2023 against April 2023’s decline of 2.7 per cent y-o-y.

In its note today, it said as a leading indicator, the continued decline in LI signalled a more moderate growth outlook in 2H 2023 on the back of concerns over the drag from the slowdown in external to overall growth this year.

Even so, the economic conditions remained expansionary, with the coincident index (CI) registering a faster annual improvement at 3.1 per cent y-o-y (April 2023: 2.2 per cent y-o-y) as all components registered sound performance.

"Nevertheless, the improved CI suggests positive growth will be sustained in the second quarter of 2023.

"We reiterate our forecast that Malaysia’s economy will expand at 4.2 per cent this year (2022: 8.7 per cent), underpinned by growing domestic demand," said the research firm. - BERNAMA