Citi expects Malaysia’s GDP to grow at 6.5%

By SHAFIQQUL ALIFF / Pic By MUHD AMIN NAHARUL

MALAYSIA’S GDP is expected to grow 6.5% in 2022 on optimism with the country’s imminent re-opening of borders, additional boost to capital expenditure from reconstruction after the floods in mid-December, earlier drivers from supply chain diversification and cyclical capacity tightness. 

Though dampened by floods in the Klang Valley in mid-December, Malaysia’s fourth quarter of 2021 (4Q21) GDP rose stronger than expected at 3.6% YoY on reopening, which should continue into 2022 despite Omicron uncertainties and external demand headwinds. 

“While Omicron delays reopening momentum, it does not derail it, both domestically and internationally. Despite the recent surge in daily infections since the start of 2022, the proportion of severe cases will decline drastically, with intensive care unit capacity utilisation rates still low,” said Citi economist Wei Zheng Kit in a statement yesterday. 

He added that this partly reflects high and rising vaccination coverage, with 78.7% of the population receiving two doses and 41.2% receiving booster shots as of Feb 15, 2022. 

“Reopening has thus continued, with officials declaring Malaysia on course for a transition to the endemic phase, and a full reopening of the borders without quarantine also on the cards. 

The impact could be significant as tourism receipts accounted for 5.8% of GDP pre-pandemic. Currently, countries accounting for 57% of 2019 arrivals have reciprocal no quarantine arrangements with Malaysia, led by Singapore (39%),” he added. 

On the global front, the economic recovery and bull market are maturing, with moderate growth expected ahead. 

Citi expects less inflationary pressure in the coming year, albeit somewhat higher inflation over the next ten years when compared to the last decade. 

The assets that perform best over the next year and beyond are unlikely to be those that rebounded most strongly in 2021. 

“As the inflationary boom ends, and the Fed (US Federal Reserve) possibly over-reacts, a peak in long-term yields may also define the trough for higher quality US growth stocks,” added. 

However, he said when rates do peak, Citi expects it may be sooner and the pressure on growth stocks is likely to abate.

“While timing is never clear with foresight, this could plausibly be after the Fed’s first interest rate increase, particularly if it takes bold action with a 50-basis point increase,” he stated. 

Citi Wealth Management Advisory regional head Sumaira Frani- cevic said more volatility is expected in the near term, and investors should improve the quality of their asset allocation by adding exposure to high-quality assets including dividend growers, sectors with stronger returns and non-US developed markets large caps and China. 

“These are times to keep calm, assess if fundamentals have actually changed, and act on data and analysis, not fear. 

This is particularly true for long- term investment strategies. History showed that the impact of local geopolitical shocks on risky assets is short-lived and does not change the long-term trend,” Franicevic added.