GDP growth, lower unemployment dim stagflation fear in Malaysia

Local economy rebounded well in the 4Q21 to grow by about 3% despite the rise in fuel and food prices, say economists 


THE Malaysian economy will not suffer from stagflation as the economy picked up momentum in the fourth quarter of 2021 (4Q21), as unemployment fell and the situation is expected to further improve throughout this year. 

Economists opined that Malaysia’s economy rebounded well in the 4Q21 to grow by about 3% despite the rise in fuel and food prices and the impact of the floods in the latter part of December. 

Bank Negara Malaysia (BNM) is scheduled to release its 4Q21 GDP review tomorrow. 

IHS Markit Asia-Pacific chief economist Rajiv Biswas said data suggest the local economy has rebounded strongly from the Covid-19 Delta wave that hit the nation in 3Q21. 

“Industrial production has shown a significant upturn in the 4Q21, after significant disruptions to supply chains and the labour force caused by Delta. 

“The impact of the latest global Omicron wave has so far been less severe in Malaysia, which has helped the economy to remain resilient in early 2022,” he told The Malaysian Reserve (TMR). 

While Consumer Price Index (CPI) rose to 3.2% in December on the back of rising global oil prices and the impact of flooding on food prices, Rajiv said the price pressures are expected to ease this year. 

“Consequently, the central case scenario for the Malaysian economy in 2022 is for rapid GDP growth and moderate inflation pressures. A downside risk scenario of high inflation and GDP growth stagnation appears unlikely in 2022,” he said. 

While stagflation is not on the cards at present, University Kuala Lumpur Business School economic analyst Assoc Prof Dr Aimi Zulhazmi Abdul Rashid said it cannot be ruled out especially if the inflationary pressures persist and are not brought under control. 

He said the rising price of crude oil and other commodities globally, along with the ongoing disturbance to the global supply chain poses a threat to the economy. 

“Other important factors would be how BNM manages the Overnight Policy Rate in reflection of the US Federal Reserve, as this will have a major impact on the valuation of the ringgit. 

“A weaker ringgit will put intense pressure on the prices of imported goods, especially on food items that have a direct relation to CPI,” he told TMR. 

Moody’s Analytics economist Denise Cheok expects Malaysia’s GDP for the 4Q21 to rise by 3% year on year. 

“Exports will be the main driver of growth, as high commodity prices push up Malaysia’s trade surplus to record levels. 

“The semiconductor shortage will also be a boon for the country’s manufacturing sector, which houses some of the world’s leading chipmakers,” she said. 

Cheok added the unemployment rate in the country has been on a downward trend since the Movement Control Order was eased in July. 

“We expect unemployment to remain below its peak, as most sectors of the economy remain open,” she said. 

The reopening of the economy in October had also boosted the services sector after interstate travel was allowed. 

“We expect Malaysia GDP growth of 6.5% in 2022, as the high vaccination rate should facilitate a rebound in the demand for services. Malaysia’s diversified exports are likely to remain strong, even though external demand may fall later in the year,” Fitch Ratings head of Asia-Pacific Sovereign Ratings Thomas Rookmaker said. 

He also opined that inflationary pressures will remain more subdued compared to several other countries as the output gap is still negative and the pass-through impact of higher crude oil prices is limited given the cap on domestic fuel prices.