Friday 29 Mar 2024
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KUALA LUMPUR (April 12): The Socio-Economic Research Centre (SERC), which maintained its Malaysian economic growth forecast at 5.2% this year, sees the economic recovery continuing, but downside risks such as the Russia-Ukraine war and a sharp slowdown in China remain.

Its executive director Lee Heng Guie said in a virtual briefing the growth this year will be underpinned largely by a sustained rebound in domestic demand, especially private consumption and public spending.

However, his growth estimate falls slightly below Bank Negara Malaysia's (BNM) estimate of 5.3% to 6.3% for 2022. The Malaysian economy grew at 3.1% in 2021.

According to Lee, domestic demand will anchor the recovery in 2022. While he revised higher his private consumption growth estimate to 6.5% in 2022 from 5.9% previously, it is still lower than BNM’s estimated 9%.

“While we reckon that pent-up demand, cash handouts and the fourth round of Employees Provident Fund (EPF) withdrawals will support consumer spending, the repairing of impaired households’ balance sheet and rebuilding of depleted savings as well as the pickup in inflation will mean prudent discretionary spending,” he said.

He also sees higher inflation and cost of living concerns crimping households’ disposable income (purchasing power) and dampen consumer sentiments.

In addition, he said the expected gradual improvement in labour market conditions (an estimated unemployment rate of 4% in 2022 versus 4.6% in 2021) and moderate increases in income would restrict spending.

Meanwhile, he expects private investment to remain cautious this year due to increased operating costs, supply disruptions, rising material costs as well as the shortage of workers amid the ongoing Russia-Ukraine war.

Private investment, which is estimated to pick up moderately to 5% in 2022 from 2.6% in 2021, is in line with BNM’s estimate of 5.3%.

He said the services sector will regain the strongest growth, which is estimated at 6.1% in 2022 (1.9% in 2021), mainly due to the revival of domestic demand on the anticipated rebound of tourism and related services sectors, thanks to the reopening of international borders.

As for the manufacturing sector, he said the sector will grow at a moderate pace (estimated at 4.8% in 2022 versus 9.5% in 2021), backed by continued demand for electronics and electrical products as well as a recovery in domestic market industries, such as construction building materials.

He also said the construction sector will rebound to grow by 6.5% in 2022 from a contraction of 5.2% in 2021 following the resumption of construction activities related to residential and commercial developments.

The external sector, however, will have a moderate impact on the economy, he said.

“Our revised higher export growth estimate of 5.9% in 2022 from 1.8% previously (26% in 2021) is lower than the 10.9% estimated by BNM,” he said.

While continued external demand for electronics and electrical products, rubber products, wood products as well as higher commodity and crude oil prices are expected to sustain positive growth, he said a slowdown in the global economy due to inflation, tighter global monetary, Russia’s invasion of Ukraine, prolonged continued supply chain disruptions, higher inputs and business costs, as well as worker shortages would dampen exports.

According to Lee, a slowdown in China would affect Malaysia’s growth as China is Malaysia's largest trading partner.

“Our export share to China is about close to 15.5%, and imports from China are 23.2%. Based on our sensitivity study, if there is a 1% slowdown or decline in China's gross domestic product (GDP), it could have a 0.3 to 0.5 percentage point impact on Malaysian GDP,” he said.

Meanwhile, although the direct impact of the Russia-Ukraine war on the Malaysian economy is muted, he noted that the prolonged conflict between the two countries will have a knock-on effect on Malaysia’s semiconductor supply chain as Russia and Ukraine are important sources of raw materials in semiconductor manufacturing.

(Note: Figures on the share of exports to and imports from China in the second last paragraph have been corrected.)

Edited ByLam Jian Wyn
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