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Malaysia recession unlikely for now, economists say

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Bank Negara Malaysia, the central bank, has projected the local economy to grow by between 5.3 per cent and 6.3 per cent this year. AFP

Malaysia recession unlikely for now, economists say

Sentiment on the Malaysian stock market has been weighed down by a couple of factors, including the fear of a recession.

The ringgit has weakened quite a bit while the Russia-Ukraine conflict is expected to pose a drag on Malaysia’s nascent export-led recovery.

Cautiousness over future economic outlook is building as the prices of commodities and metals linked to manufacturing have eased from their peaks.

Malaysia is an exporter of oil, crude palm oil (CPO) and electrical and electronics (E&E) components, which has been a great beneficiary to the trade balance as countries emerge from the pandemic.

While the hit on commodities may impact Malaysian exports to a certain extent, a recession is unlikely for now, said economists.

“We may see a slowdown due to supply-chain disruptions but recession is not likely,” said AmBank Group chief economist Anthony Dass.

According to him, the Russia-Ukraine conflict is likely to hit advanced economies harder compared with developing Asia.

“There is still sustainable growth from China, which is our largest trading partner.

“We are looking for a growth of about 4.8 per cent for the country in 2022, which is conservative versus 5.3 per cent as projected by others,” he told StarBiz.

He added that Malaysia will continue to benefit from commodity prices and the E&E segment, as demand for these products and merchandise are still on the high side compared to what was projected at the start of the year.

“In 2022, we are looking at an average of $90 for oil, while CPO at around 5,000 ringgit [$1,150] versus 3,500 ringgit at year-start,” Dass said.

For context, Budget 2022 was designed based on an estimated oil price of $66 per barrel.

“For this year, our base-case [growth] projection is at 5.6 per cent, with the downside at 4.8 per cent and upside at six per cent, which is still higher than 2021’s 3.1 per cent growth,” added Dass, who is more concerned about the impact of China’s zero-Covid policy than the Russia-Ukraine conflict.

“China is the global manufacturing powerhouse, so every time there is a sporadic shutdown, there is an impact on the supply chain.

“For Malaysia, recovery will be skewed, driven by export-led factors such as semiconductors and resource-related.

“The economy will also get an uplift from a rise in consumer spending and there would be a positive spillover effect from tourism and tourism-related activities with the reopening of international borders,” he added.

On the other hand, the construction sector will be slow until the big projects are rolled out.

That said, he added that there could be more downward revision to the economic growth projection.

Meanwhile, economist Manokaran Mottain said downside risks on the global economy remain due to geopolitical tensions, spiking inflation and potential interest rate hikes in advanced economies, which could crimp growth this year.

“Fears [of the world heading for another recession] may be overblown. It is relatively unlikely but you cannot rule it out, given the growing list of risks clouding the global economic outlook.

“However, for Malaysia, inflation is still manageable. The only thing not in our favour is the exchange rate but the perception is that local interest rates are likely to go up slowly as compared to the United States.

“So there has been an outflow of funds from the country in search of better yields,” he added.

Bank Negara Malaysia, the central bank, has projected the local economy to grow by between 5.3 per cent and 6.3 per cent this year.

Earlier this month, the World Bank lowered its gross domestic product (GDP) growth forecast for Malaysia for 2022 to 5.5 per cent from 5.8 per cent previously.

THE STAR (MALAYSIA)/ASIA NEWS NETWORK

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