Optimism over Malaysia’s economic recovery in 2022
High Covid-19 vaccination rates in Malaysia are expected to facilitate a sustainable economic reopening of the country’s economy in 2022, according to a new report.
The recently released ‘OCBC First-Half (1H) 2022 Global Outlook Report’ said that there is a good chance of economic recovery picking up speed, from a likely 3.2% in 2021 to a 5% in 2022.
The report said: “While the government has telegraphed a 5.5–6.5% 2022 growth outlook, we are more conservative, partly because we see a more contained recovery in private consumption as households try to rebuild their savings that have been depleted considerably during the pandemic bouts.”
Vaccination rates climbing
The main reason for the renewed confidence is because Malaysia appears to have better control of the pandemic, with vaccination rates in Malaysia climbing; 76% of the total population have now received both shots.
The OCBC report said: “The reopening initiatives — the travel lanes with Singapore and Indonesia being the most evident example — [will] give some boost to the economy.
“However, we remain watchful of the fact that the Employees Provident Fund’s (EPF) withdrawal schemes that were an integral part of the stimulus packages have resulted in a cleaving off of savings for households that might take a while to rebuild, resulting in curtailed consumption growth in the coming years,” it said.
The report predicts that, with the prospect of a better economic recovery on the cards, Bank Negara Malaysia (BNM) will refrain from any rate cut to interest rates. “After all, it kept its policy rate unchanged throughout the whole of 2021, despite the overt challenges posed by the pandemic and political crises of the period.
“Indeed, judging from its tone in the November 2021 Monetary Policy Committee (MPC) meeting, it might have started to lay the groundwork in preparation for greater expectation for the rate to move the other way,” it said.
“To us, we continue to see a central bank that will be committed to supporting growth for as long as it can by keeping the policy rate anchored at the current low level. Inflation should remain broadly anchored as well given the lingering output gap.
“For instance, the unemployment rate remains lofty at 4.6%. Even if it has come down from the peak of 5.3% last year, it remains well above the 3.3% pre-pandemic run rate, just one sign of how the impact of the pandemic on the labour market remains far from being resolved,” it said.
Hence, OCBC said its baseline remains that BNM can and will leave its overnight policy rate unchanged at 1.75% throughout 2022.