HSBC projects 5.5% GDP growth, ringgit to reach RM4.28 in 2H22


MALAYSIA’S economic recovery is projected to grow 5.5% this year, according to HSBC global private banking and wealth South-East Asia chief investment officer James Cheo.

He said the ringgit will also stabilise against the US dollar in the second half of 2022 (2H22), strengthening to 4.28 by the end of the year.

Cheo noted that among the main drivers to the recovery includes the reopening of international borders, growth in commodity prices as well as the continued momentum of manufacturing activities, especially semiconductors.

He also said Malaysia’s GDP was in a strong position and opined that it would be around 5.5%.

“The Malaysian economy expanded by 5% year-on-year in the first quarter of 2022 to pre-pandemic levels and with the impact of pandemic restrictions receding, private consumption bounced back and investment stabilised, though this led to import growth outpacing exports.

“Domestic demand should accelerate further this quarter and next, supported by a tightening labour market.

“The global economic cycle is also expected to continue with a slow momentum, inflation will decline gradually and the US rate hikes are expected to moderate in 2H22, although energy shocks and supply chain disruptions are expected to remain,” he said during HSBC’s 2H22 Investment Outlook virtual briefing today.

Cheo said, essentially, the Asean region recorded a strong recovery in economic activity this year, underpinned by “living with Covid” strategy.

He added that accelerated efforts to remove quarantine and Covid-19 testing requirement at entrances has helped Asean countries, including Malaysia, to achieve a sharp rebound in tourism.

Cheo highlighted that Malaysia benefited from a diversified export base by becoming Asia’s only major net exporter of oil and gas and the world’s second largest exporter of palm oil.

On the Bank Negara Malaysia’s (BNM) move to raise the Overnight Policy Rate (OPR), Cheo said it has the potential to reduce the significant increase in inflation or commodity prices, as well as strengthen the value of the local currency.

He said, however, further efforts to revive the ringgit are highly dependent on the steps to be taken by the central bank.

Accordingly, he said HSBC expects BNM to increase the OPR by another 50 basis points, ending the year at 2.5%.

“We believe that the ringgit against the US dollar will stabilise in 2H22 and move to RM4.28 by the end of the year, as global market sentiment improves,” he noted.

Commenting on GST, Cheo said Malaysians should not worry too much about the reimposition of the tax, but the concern should be more about whether the nation has a strong economic recovery after the Covid-19 pandemic.

He added that while the pandemic and its disruptions have led prices to be extremely high along with inflation, reimplementing the GST in such times could further increase prices for goods and services.

He said as a result, consumers might pause some of their purchases in the short term.

“But the question is, how would it affect consumption? Would it really curtail consumption over the long term? My answer is no.  

“It really depends on the strength of the economy, wage growth and the long-term prospects of the productivity gains of the country, and I think Malaysia has all these good tailwinds going for it.

“In that sense, Malaysians should not worry so much about the GST increase. So, I think what’s important is that ultimately, the reopening of the economy is strong. I think those factors matter more than the increase in consumer tax,” he said.

Cheo also pointed out that the increase in GST is seen in many markets around the world, including Malaysia as well as Singapore.

Prime Minister (PM) Datuk Seri Ismail Sabri Yaakob said on June 5 that the government is still studying whether to reintroduce GST and has not made a decision yet.

The PM noted that he did not announce that the government would reinstate GST soon but merely said it was looking into this possibility.

However, Ismail Sabri had previously noted that GST was seen as capable of widening the country’s revenue base, and the government was not ruling out the possibility of reinstating it as an effective way to increase national income and help combat inflation and rising cost of living.  

The GST was first introduced in Malaysia on April 1, 2015, by the Barisan Nasional government at 6% rate. Later, it was suspended and abolished by the Pakatan Harapan government and was replaced by sales and services tax in 2018.  

The current sales tax rate is 5% and 10%, while GST was 6%.