KUALA LUMPUR (Jan 11): HSBC has revised upwards Malaysia’s 2022 gross domestic product (GDP) growth forecast to 5.6% from 5.4% previously, according to HSBC private banking and wealth management chief investment officer (CIO) in Southeast Asia James Cheo.

Speaking in the HSBC Private Banking and Wealth 2022 Investment Outlook virtual media briefing on Tuesday (Jan 11), Cheo said a key driver behind the growth forecast revolves around increased consumption via economic reopening.

“This consumption piece is the largest and that really will buttress Malaysia,” he said.

Cheo added that there is also a pent-up demand for foreign direct investment and infrastructure spending, and noted that this will also be a key driver for Malaysia’s economic growth in 2022.

“Also there is pent-up demand in foreign direct investment and pent-up demand in infrastructure spending, which has been on hold for the past two years.

“It is likely that this year will be the year in which companies will start to invest and grow their operations, especially as the long-term prospect for Southeast Asia is huge. I think that a lot of companies wanted to expand but held off their plans because of the pandemic,” he said.

He said this growth will be further supported by Malaysia’s manufacturing sector, but noted that vaccination rates have to ramp up to ease supply chain issues.

“Also, I think the momentum from the manufacturing cycle, especially in the export part, would still continue to be a strong pillar for Malaysia.

“I think that is where support will come from, especially when Malaysia hits higher vaccination progress, supply bottleneck issues should ease in the second half of this year (2H2022) and that would mean that the export machine, the industrial production side of things, would start to come on very strongly in Malaysia,” Cheo added.

Additionally, Cheo noted that the introduction of “positive surprises”, such as the resumption of the Vaccinated Travel Lane (VTL) or tourism in 2H2022 would be additional boosters to Malaysia's growth.

In Budget 2022, the government has projected GDP growth of between 5.5% and 6.5% in 2022.

Meanwhile, Cheo also noted that the Omicron variant is a factor to take into account as it can impair the nation’s growth.

He added that Omicron’s impact on growth will be dependent on two things: an induced lockdown and supply bottleneck.

“In Malaysia’s case, the impact of Omicron depends on two things. Firstly, in terms of policy response, Omicron can slow growth down if the government goes [for an] all-out lockdown.

“But also at the same time, for any variant [of Covid-19] of that matter, what it does is that it could also create supply bottlenecks. Supply bottlenecks increase inflationary pressures, so you have a situation where certain products or parts of production get more expensive, and thus the price increases,” he said.           

Cheo said he expects some price pressure in the early part of 2022, but noted that the more likely case is that price pressure will fall in the latter half of the year.

“As this price pressure normalises, growth will still remain strong. What people are afraid of is of course that this price pressure does not subside and as a result growth slows down at the same time.

“We think at this stage it is not likely based on where we are in terms of vaccination and adaptation. However, in the case that inflation does not subside in 2H2022, you might get a rate hike from the central bank in Malaysia (Bank Negara Malaysia).

“But I think at this stage, many countries are in a wait-and-see mode, but there could be a tightening of policy,” he added.