This is as there are still concerns about the pandemic and China’s Covid-zero policy

by AZALEA AZUAR / pic by TMR FILE

ALTHOUGH Malaysia’s international borders have finally reopened, the World Bank expects foreign tourists to pick up at a slower pace as there are still concerns about the pandemic as well as China still implementing its Covid-zero policy.

“We will see some pickup in tourism, although I think it’s going to be slightly aggressive at a gradual pace and that’s because domestic travel and tourism will continue to grow as what we have seen beginning in December last year,” World Bank senior country economist Shakira Teh Sharifuddin said during a media briefing on the East Asia and Pacific Economic Update April 2022.

Read more: World Bank estimates Malaysia’s economy to grow 5.5% in 2022

“The services related sectors would definitely benefit now with restaurants and shops being allowed to operate almost at pre-pandemic levels so definitely some pickup there,” she said.

“We’ve already seen improvement in labour markets, beginning in the fourth quarter last year, and that will continue its trend going forward.

“With regards to investment, especially domestic investment, I think it provides a lot more certainty now that the government has clearly communicated that this is going to be a phase where we transition into endemicity,” she added.

Malaysia’s economy is expected to grow at 5.5% this year on the back of its economic reopening and continued export expansion, especially in electric and electronic goods and medical rubber gloves.

Shakira expects private consumption to be the main driver for the growth of this year as well as the improvement of investments.

While recovery is on its way, she also warned that there are downside risks in growth which are the ongoing Russia-Ukraine war which have caused uncertainties and a lot of spillovers.

At the same time, Malaysia is a prospect of growth in advanced economies. This would also probably create a lot of uncertainty surrounding supply chain disruptions as well, which had an impact slightly last year on our external demand.

There is a potential risk of facing new or emerging Covid-19 variants but with how the country has decided to reopen its economy and move on to the endemic phase, this would only remain a small risk, but yet something to consider.

The World Bank’s report also revealed that Malaysia and Vietnam are more susceptible to global financial and growth shocks compared to other countries in the region as they have a high dependence on exports caused by the current Russia-Ukraine crisis.

Although the commodity producers and fiscally prudent countries may fare well in overcoming these shocks, the repercussions of these events will dampen the growth prospects of most in the region.

In Malaysia, fiscal space is expected to stay limited this year which shows the need to rebuild fiscal buffers over the medium-term while the rise in commodity prices provides only temporary fiscal relief.

On the other hand, the global economic growth is projected to slow to 5% in 2022, which is 0.4% less than expected in October but the World Bank has also warned that it could slow to 5% if global conditions worsen and national policy responses are weak.

It also expects the output in the rest of the region to grow by 4.8% in the baseline and 4.2% in the downside scenario where six million people in the region would remain trapped in poverty in 2022 at the US$5.50 (RM23.16)/day poverty line.

Moreover, the financial tightening and China’s slowdowns are likely to magnify the existing post-Covid difficulties.

The World Bank reported more than 50% of regional firms have struggled in payment arrears last year which will be hit by new supply and demand shocks while real incomes plummet further as prices soar for households that suffered during the pandemic.

It also warned that indebted governments who have seen their debt as a share of GDP increase by 10% since 2019 will struggle to provide economic support while increased inflation will shrink room for monetary easing.

World Bank East Asia and Pacific chief economist Aaditya Mattoo believes that these successions of shocks indicate that the growing economic pain of the people will have to face the shrinking financial capacity of their governments

“A combination of fiscal, financial and trade reforms could mitigate risks, revive growth and reduce poverty,” he said.