Transition to endemic status a boost to economy – Economist

by BERNAMA / pic by TMR FILE

KUALA LUMPUR – Malaysia’s economy is expected to strengthen this year as the country transitions to the endemic phase, starting with the reopening of international borders.

Gross domestic product (GDP) growth is projected to be around six per cent (2021:3.1 per cent) for the year, and the first-quarter GDP is likely to record a growth of five to six per cent (2021:-0.5 per cent).

Sunway University professor of economics Dr Yeah Kim Leng said the growth momentum will be supported by stronger private consumption and investments amidst more positive sentiments and overall outlook.

“The resource-based and commodity sectors, particularly palm oil, rubber and oil and gas (O&G) are expected to thrive on the back of high prices,” he told Bernama.

The electrical and electronics sector would also continue to benefit from strong export demand as the global electronics supply remain constrained, while the services sector (including the import and export of services) is also expected to see stronger demand this year with the reopening of the economy.

Yeah said the country’s transition into the endemic phase will have a positive spillover effect on various industries.

“The aviation, hospitality and tourism-related industries are expected to emerge from their two-year doldrums and chart better performance as firms rebuild their balance sheets,” he said, adding that it would also be a shot in the arm for the retail sector.

Additionally, the lifting of border restrictions would also facilitate cross-border business activities, trade and investment-related services, as well as mergers and acquisitions activities.

Meanwhile, Yeah said although Malaysia is not directly impacted by the Russia-Ukraine conflict, the disruptions to global energy and commodity markets, coupled with higher risk aversion would have mixed short term effects on the country’s inflation, export earnings and financial markets.

He noted that the second-round negative effects on global growth would dampen the external outlook for Malaysia’s highly open economy.

“Both commodity and financial markets will see increased volatility although the higher commodity prices – including O&G – will be positive for Malaysia’s export earnings and further widen its current account surplus.

“While short-term foreign portfolio inflows may increase due to diversification of geopolitical risk in favour of the Malaysian markets, the market swings are likely to be elevated since geopolitical, growth and policy risks abound in the current environment,” he said.

Moving forward, the country’s strong economic outlook will also help to boost the ringgit, which is projected to strengthen to 4.10 against the US dollar from 4.17 last year despite heightened uncertainty, said Kenanga Research

The research house said it is cautiously bullish on the local note, but noted that the ringgit may continue to trade under pressure in the next few months due to the volatile market environment brought about by the Eastern Europe crisis, China’s stringent pandemic-control measures and the United States Federal Reserve’s increasingly hawkish tone.

On the overnight policy rate, it said Bank Negara Malaysia might raise the lending rate in the third quarter of 2022 after major economic indicators point to a sustainable recovery.

“The reopening of Malaysia’s international borders on April 1, coupled with the central bank’s continued accommodative policy stance, is seen to prop up economic growth in the second half of the year,” it said in a note recently.