Domestic demand expected to expand 6.6% in 2022, driven by pent-up private consumption and higher public spending

Domestic demand expected to expand 6.6% in 2022, driven by pent-up private consumption and higher public spending
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KUALA LUMPUR (Oct 29): Domestic demand in Malaysia is expected to expand by 6.6% in 2022 and return to pre-pandemic levels after a 3.1% rebound in 2021.

The Ministry of Finance (MoF) expects pent-up demand to spur economic growth amid expectations of a rebound in private and public consumption and investments.

Private spending to grow 7.3% in 2022

In its annual Economic Outlook 2022 report, the MoF anticipated private consumption to grow by 7.3% in 2022, compared with 4.1% in 2021. 

More notably, the 4.1% growth in private consumption would be buoyed by the continued assistance and stimulus measures, such as wage subsidies, Bantuan Prihatin Rakyat, targeted moratoriums, Special Covid-19 Assistance as well as i-Sinar and i-Citra assistance. 

The report revealed that RM20.2 billion had been approved for 4.9 million applicants for i-Citra, while RM58.4 billion had been disbursed for 6.6 million applicants for i-Sinar, and RM14.3 billion had been disbursed for the Wage Subsidy Programme, benefiting about 3.3 million employees between August and September 2021.

The ministry forecast that higher disposable income and better employment prospects in a broad-based economic recovery will stimulate private consumption spending in 2022. 

“Further improvements in consumer confidence and positive wealth effects on the back of a modest recovery of the stock market are also anticipated to stimulate private consumption spending,” the MoF wrote.

Private investments to rise 2.6% in 2022

For private investments, the MoF rated a 2.6% growth for 2022 in contrast with only 1.4% for 2021.

Existing and new initiatives such as the MalaysiaMudah (#MyMudah), Project Acceleration and Coordination Unit (PACU) and One-Stop Centre for Business Travellers were introduced in 2021 and will continue to operate in 2022 to expedite investment applications and investors’ entry into Malaysia.

Public investments to climb 24.1% in 2022

The MoF reckoned a likely rebound of 24.1% in public investments in 2022 versus a 1.9% contraction in 2021.

Driving the rebound in public investments would be main public transportation projects such as the Mass Rapid Transit Line 2 (MRT 2), Light Rail Transit 3 (LRT 3), Rapid Transit System (RTS), Pan Borneo Highway and new projects, such as the MRT 3 and upgrade of the Klang Valley Double Tracking Phase 2 (KVDT 2). 

Simultaneously, the government’s National Digital Network (JENDELA) plan that aims to improve the country’s digital infrastructure would also support the rebound in public investments.

Public spending to increase 1.1% in 2022

A marginal expansion of 1.1% is expected for public consumption in 2022, according to the MoF, on the back of an increment of 3% in 2021. 

The ministry cited spending optimisation and prudent financial management as the reason for the marginal expansion after embarking on a lengthy procurement of Covid-19 containment supplies and services as well as the implementation of the PERMAI, PEMERKASA, PEMERKASA+ and PEMULIH packages carried forward from 2020 to 2021.

The ministry also anticipated an increase in gross national savings by 5.5% in 2022 when stacked against 3.8% in 2021, in line with a projected increase in national income at current prices by 7.4% in 2022 from 6.2% in 2021.

Total investment expenditure is also projected to expand by 6.9% to RM316.5 billion in 2022, compared with a 5.9% growth or RM295.9 billion in 2021. The estimates for 2022 amount to a more significant portion (23.5%) of gross national income (GNI) than in 2021 (20.1%).

These estimated figures, according to the national treasury, will see the savings-investment gap to remain in surplus of GNI at RM55.6 billion or 3.5% in 2022, compared with RM56.7 billion or 3.8% in 2021.

“[The savings-investment gap] provides ample liquidity to the financial system, which can be mobilised to finance long-term productive investments without sourcing external funds”, concluded the MoF.

Kathy Fong