KUALA LUMPUR (Sept 14): Malaysia is unlikely to enter a recession despite high inflationary pressures worldwide forcing central banks to tighten monetary policy to curb inflation, according to Bursa Malaysia chairman Tan Sri Abdul Wahid Omar.
Apart from the benefits of pragmatic and responsive policies, Malaysia has over the years diversified the structure of the economy to be less dependent on commodities, he said.
“As the world economies progress towards a full recovery, new challenges have arisen, impacting Malaysia and our major trading partners. Within our globalised world, supply chains have been under pressure as economies begin to return to normal. US-China trade tensions and the Ukraine-Russia conflict have also caused commodity prices and logistics costs to skyrocket.
"This in turn is causing high inflationary pressures globally, forcing central banks to tighten their monetary policy to rein in inflation, with China being the exception.
"This is likely to cause an economic slowdown, and potentially a recession in some countries in 2023,” Abdul Wahid said in a speech at the Invest Malaysia: Pivoting for the Future conference on Wednesday (Sept 14).
However, in Malaysia, he said the agriculture and mining sectors now contribute only 14% of the country’s gross domestic product (GDP), with the services sector contributing 57% and the manufacturing sector contributing 24.3% of GDP.
“The diversity of our trading partners — where we are not overly dependent on one particular country — adds to our economic resilience,” he said.
A very important factor contributing to Malaysia's resilience is the strength and stability of the financial system, the chairman noted, as Malaysian banks are well capitalised, liquid, better managed, and effectively regulated and supervised by Bank Negara Malaysia.
Notwithstanding, he said, banks would continue to fulfil their intermediation role by mobilising funds that are channelled into productive sectors of the economy.
“These Malaysian banks and financial services companies have significant weighting in both the FBM KLCI and the FTSE4GOOD Bursa Malaysia sustainability index. The seven banking stocks alone — Malayan Banking Bhd (Maybank), Public Bank Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd, RHB Bank Bhd, AMMB Holdings Bhd (AmBank) and Alliance Bank Malaysia Bhd — have a combined market capitalisation of RM325.36 billion or about 20% of total market capitalisation of RM1.65 trillion as at end-June 2022,” he explained.
According to Abdul Wahid, the financial system is complemented by well-functioning debt and equity capital markets totalling RM3.5 trillion as of Dec 31, 2021, which were made up of RM1.7 trillion in the debt capital market and RM1.8 trillion in the equity capital market.
Furthermore, Malaysia is also home to the world’s leading Islamic capital markets totalling RM2.3 trillion, representing almost two-thirds of the total capital market.
“On the resilience of the corporate sector, resilience should be redefined as the outcome of a process of transformation or of reinvention — so that we can sustain and 'bounce back', but in a much-improved form than before. This process of 'reinvention', of finding our competitive position within that future, is not only an academic or data-driven exercise, but it requires talent too.
“It is critical that the next generation of leaders not only step up to the plate, but bring a fresh perspective that serves to change the game. Today’s leaders must share their skills and experience with those who possess the youthful energy and will to make this change happen,” Abdul Wahid added.