Malaysia’s GDP is growing at its fastest rate in 22 years

Last updated on February 13th, 2023 at 01:15 pm

Malaysia’s central bank said on Friday that the economy would not enter a recession this year and will have stronger-than-anticipated growth in 2022 as the nation gains a firmer footing to emerge from the pandemic-induced economic crisis of recent years.

Some experts caution against excessive optimism, noting that domestic demand remained subdued and that layoffs and general pessimism in the global technology sector posed hazards for China’s significant electronics industry.

According to figures collected by the Department of Statistics Malaysia, full-year growth in 2022 was 8.7%, nearly treble the 3.1% recorded the previous year and the fastest rate since the 8.9% expansion in 2000.

Bank Negara Malaysia (BNM), the country’s central bank, had previously predicted annual growth between 6.5-7 percent.

Governor of the central bank Nor Shamsiah Mohd Yunus stated that a recession is not anticipated in 2023 because the global economy has continued to expand despite earlier predictions of a global recession due to the combined effects of the Ukraine conflict, global supply chain disruptions, and soaring inflation over the past year.

“The labor market will continue to revive, and employment and income will continue to rise,” she said during a news conference.

The governor stated that economic momentum is likely to reduce this year due to weaker external demand, but would remain robust, driven by local demand and buoyed by strong interest from foreign investors and a predicted “V-shaped” tourist revival.

All of these elements will be more than sufficient to counteract the threats that will impede global development.

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According to Mohd Afzanizam Abdul Rashid, head of economics and research for the Employees Provident Fund, which manages retirement funds for private sector workers, Malaysia’s economic performance in 2022 was better than anticipated and should continue to be resilient in the face of possible recessions in the United States and Europe.

He predicted that the current conflict between Russia and Ukraine will continue to dampen business mood owing to rising commodity costs and supply chain disruptions.

Mohd Afzanizam stated that despite this, the reopening of China’s economy might boost Malaysia’s tourism industry, leading to increased activity in the aviation, food and beverage, hotel, and to some extent healthcare sectors.

“In this context, we anticipate that Malaysia’s fiscal and monetary policies would continue to be expansionary and accommodating in order to sustain the growth momentum in 2023,” he continued, saying that economic growth in 2023 was projected to be 4%.

The central bank did not provide an updated growth prediction for 2023, stating that it will be released when Prime Minister Anwar Ibrahim submits the amended budget later this month.

The headline rate of inflation was 3.3% in 2022 and is likely to fall this year, while staying elevated.

The central bank did not rule out the prospect of another increase to its overnight policy rate (OPR), which was maintained at 2.75 percent in January — contrary to widespread expectations of another 25 basis point increase after a total of 100 basis point increases since May of last year.

Nor Shamsiah stated that this halt will allow for better clarity, a review of cumulative hikes to the OPR, and consideration of the economic climate and how it affects growth and inflation projections.

However, others are skeptical about the central bank’s optimistic prediction for the economy this year.

Any benefit from China’s reopening may not be sufficient to offset the shortfall from weak demand for Malaysia’s electronics, which account for a third of Malaysia’s exports, and domestic demand is likely to remain subdued as households and corporations grapple with higher borrowing costs, according to Shivaan Tandon, Emerging Asia economist for Capital Economics.

The emotions on the streets are much more pessimistic.

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