Thursday 28 Mar 2024
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KUALA LUMPUR (Sept 20): The Socio-Economic Research Centre (SERC) has revised upwards its gross domestic product (GDP) growth projection for Malaysia to 6.5% from an initial 5.2%, following steady growth in the second quarter of this year (2Q22).

Should its forecast be achieved, Malaysia’s economy would expand at the fastest pace since 2010, when it recorded a growth expansion of 7.4% year-on-year (y-o-y).

SERC executive director Lee Heng Guie said the revised figures were made after 2Q22 GDP came in at 8.9% y-o-y, and the growth momentum is expected to sustain in 3Q22.

SERC projects 3Q22 growth at between 8% and 9% aided by low base effect, before easing to 4% to 5% in 4Q22, Lee said at a media briefing on Malaysia's quarterly economy tracker.

Earlier this month, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz had also commented that Malaysia's economic growth may surpass the official estimates of 5.3% to 6.3% given the second quarter's growth of 8.9%, with the pace expected to carry through in the third quarter.

In July, S&P Global Market Intelligence projected Malaysia's GDP growth would hit 7% by 2022 due to strengthening domestic demand, strong exports and the reopening of international borders.

Even so, Lee remains wary of the strength of consumer spending amid rising inflation, higher cost of living and the tapering effect of consumption and cash flow from assistance measures such as the ending of targeted loan repayment assistance and a reversion of employees' contribution rate to the Employees Provident Fund to 11% from 9%, starting in July this year.

Against this backdrop, Malaysia’s GDP is projected to grow at a slower pace of 4.1% in 2023 on weakening global growth, the normalisation or domestic demand and also the high base effect.

“As consumer spending accounts for 58.8% of the Malaysian economy, we have been closely watching for signs of a cool-down,” Lee said.

“Private investment remains cautious on increased costs, shortage of workers, coupled with external uncertainties and domestic political uncertainty,” Lee added.

Lee also expects rising recession risk to the US and European economies on the back of more aggressive monetary tightening and continuing Russia-Ukraine military conflicts.

He anticipates inflation will hit a peak in 3Q22, and projects full-year consumer price index (CPI) will come in at 3.5% for 2022.

“For 2023, inflation will depend on the direction of oil price and the government's timing to introduce a fuel subsidy rationalisation plan,” he added.

On the ringgit front, Lee anticipates the local unit will continue to trade on a downward bias against the US dollar in the near term as there is no sign of US interest rates peaking in the short term.

At press time on Tuesday (Sept 20), the ringgit had weakened further to 4.5535 against the greenback. The ringgit has depreciated 9.29% against the US dollar since end-December 2021, when it traded at 4.1665.

On the other hand, Lee expects Malaysia's interest rate to remain at 2.5% this year, after a cumulative 75-basis-point hike this year.

“We believe that Bank Negara Malaysia will take into consideration the impact of its gradual and measured pace of interest rate hike trajectory due to growth risks while keeping inflation under its radar,” he explained.

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