Malaysia’s 4Q21 GDP print points to sustained recovery in 2022

Inflation remains contained as the recovery gains momentum despite challenges posed by Omicron 


THE Malaysian economy is well-positioned to continue benefitting from the expansion in global trade and investment activities following the acceleration of the Covid-19 booster vaccination programmes are set to improve domestic economic activities and strengthen the recovery momentum. 

Bank Negara Malaysia (BNM) governor Tan Sri Nor Shamsiah Mohd Yunus said inflation remains contained as the recovery gains momentum despite challenges posed by the new Covid-19 Omicron variant. 

While prices of commodities like crude oil, edible oils and base materials have risen to fresh highs in recent weeks, she brushed aside concerns Malaysia could face hyperinflation pressures saying it was highly unlikely the 1974-style stagflation would occur. 

“If we look back in the last 30 years, the highest inflation rate that we have seen was about 8.5% in July-August 2008 when oil prices doubled to nearly US$150 (RM628) per barrel from US$74 per barrel the year before. 

“We expect headline inflation to remain moderate in 2022, closer to its long-term average, while core inflation is likely to remain modest this year. The easing of containment measures and improving job market and income conditions are factors that will lift consumption activity,” she said at a virtual press conference after the release of the fourth quarter 2021 (4Q21) GDP results last Friday. 

Malaysia’s GDP registered a positive growth of 3.6% in the 4Q compared to a decline of 4.5% in the 3Q21 as economic activities resumed with the easing of containment measures. The economy grew by 3.1% for 2021, which was at the lower end of the 3%-4% official forecast. 

For 2021, the average headline inflation stood at 2.5% against -1.2% in 2020, while core inflation averaged at 0.7% versus 1.1% in 2020. 

Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said the latest print for the 4Q21 GDP suggests the reopening of the economy since October has been instrumental in reviving growth. 

He expects to see key components such as private consumption turning positive at a rate of 3.7% as more individuals and households are able to spend. Net exports also turned positive to 2.6% after contracting 37.5% in the previous quarter. 

“The country’s economy has been powered by both engines — domestic and external demand. As such, Malaysia’s GDP should be able to record respectable growth going forward. 

“This is given the fact that there are likely to be less restrictions on human mobility following the recent indication from the National Recovery Council that international borders would be open in March,” he told The Malaysian Reserve. 

Similarly, he said the state of the economy in advance also continued to show encouraging signs, implying that the external sector will continue to provide support to the overall economy. 

“As such, we expect more lively economic activities this year. Having said that, the potential pitfalls are still visible. The rising cost of living would cause consumers to remain cautious in their spending pattern especially when rising prices involving the necessities such as food-related items were the main driver. 

“Not to mention global supply chain disruption, heightened geopolitical risks and the prospect of higher interest rates could weigh on the business sentiments. Overall, we are still sticking to our call that 2022 GDP could come in at 5.5%,” he added. 

With the path to recovery gaining momentum, many are anticipating BNM will move to tighten monetary policy in the second half of the year despite the central bank voicing a cautious tone about the balance of risks to growth remaining tilted to the downside. 

“In our view, as the economy continues on its path of recovery, labour conditions outside the goods-producing sectors are likely to catch up this year alongside the broader resumption in services, in turn guiding core prices higher, albeit at a gradual pace, in line with the central bank’s assessment. Thus, we continue to expect monetary policy tightening of 25 basis points each in the 3Q22 and 4Q22,” a JPMorgan Chase & Co report on the 4Q GDP performance noted. 

Meanwhile, BNM stated applications for the Financial Management and Resilience Programme (Urus) have been extended until March 31, 2022, for the eligible B50 income group customers who are on banks’ flood relief assistance programmes. 

Nor Shamsiah said the banking industry extended the Urus application period to ensure support continues to be available to affected borrowers who need more time to get back on their feet. 

The central bank’s deputy governor Jessica Chew Cheng Lian said banks would continue to have ongoing restructuring programmes in place to assist borrowers that continue to face financial difficulties. 

“It does not mean that there is no help for other borrowers and it also does not mean that come to the end of March 2022, for those who have taken up flood assistance programmes from banks, there will be no help,” she added. 

Chew said the central bank expects credit risk to be manageable, although the outlook remains challenging given the developments in the Covid-19 pandemic. 

“Firstly, banks have built up substantial provisions to date and expect most banks to maintain the provision for 2022 so that it would help buffer potential credit losses. 

“Secondly, with repayment assistance programmes progressively coming to an end, banks are also increasingly engaging with borrowers. There is more visibility to the creditworthiness of borrowers. That will help ensure the provision level remains adequate,” she said. 

For the most vulnerable groups of borrowers, she reminded that repayment assistance programmes remain in place for them, particularly the Urus programme.