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IMF: Malaysia set for a gradual recovery, 5.75% GDP rise

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The International Monetary Fund (IMF) projects Malaysia’s economy to grow 5.75 per cent this year. AFP

IMF: Malaysia set for a gradual recovery, 5.75% GDP rise

The International Monetary Fund (IMF) says Malaysia’s economy is set for a gradual recovery from the Covid-19 downturn, with real gross domestic product (GDP) growth at 3.1 per cent in 2021 and projected to accelerate to 5.75 per cent in 2022.

According to the preliminary findings of an IMF team led by its economist Lamin Leigh, growth will be supported by the authorities’ impressive vaccine rollout and swift implementation of economic policy support measures, Bernama reported.

“A more severe downturn in 2021 was averted, thanks to the swift, substantial, and multi-pronged pandemic policy response targeted to support affected households and businesses.

“Growth in 2022 is projected at about 5.75 per cent, driven by pent-up domestic demand and continued strong external demand,” Leigh said in a statement.

He said the pandemic is set to leave implications that could linger over the medium to long run and the recovery would likely be uneven.

He added that the team recommended additional near-term targeted fiscal support to the vulnerable and hard-hit segments of the economy.

“In the near term, fiscal policy should continue to be nimble and increasingly targeted, with a focus on further buttressing the recovery, minimising economic scarring, protecting the vulnerable segments of the population, and scaling up productive investments, in line with the authorities’ spending priorities.

“A credible, specific, growth-friendly, and clearly communicated consolidation strategy should be implemented once the recovery is entrenched to rebuild fiscal buffers, preserve fiscal sustainability, and reduce fiscal risks, supported by robust fiscal governance practices,” Leigh said.

The findings also recommended accommodative monetary policy stance and the continuation of financial sector support measures.

Meanwhile, economists are projecting a GDP growth of 4.5-to-six per cent for this year. They also expect hikes in the overnight policy rate (OPR) in the second half of the year due to inflationary pressures.

AmBank Group chief economist and member of the Economic Action Council Secretariat Anthony Dass said the country’s economic performance is expected to improve this year. As an open economy, he said better global trade and global growth would continue to lend support to the export-related manufacturing activities.

“More Malaysians are now able to cross states. Furthermore, the Vaccinated Travel Lane between Malaysia and Singapore would boost our domestic tourism and business activities in Johor and Malacca.

“And with the full opening of the economy on March 1, 2022, it will undoubtedly provide a positive impact. It will benefit many low-hanging fruit activities, especially tourism and tourism-related ones.

“Domestic activities should gain momentum besides the export segment. Also, the record breaking foreign direct investment approvals in 2021 amounting to 106.1 billion ringgit [$25.3 billion] would have boosted investments.

“Another bright spot for 2022 would be the export market, which is expected to continue growing despite the ongoing supply chain challenges.

“These challenges will eventually ease and the supply chain is likely to return to the pre-pandemic level by 2023 or early 2024,” Dass noted.

Dass expected 2022 growth to be 5.4 per cent with an upside of six per cent, supported by improving business activities and consumer spending plus a low base.

The downside for the 2022 economic growth is around 4.5 per cent, he said.

Economists Nazmi Idrus and Lim Yee Ping at CGS-CIMB Research are retaining their GDP growth forecasts for 2022 at 5.6 per cent year-on-year, with growth in the first quarter estimated at 5.1 per cent year-on-year.

They said last year’s dismal fourth quarter was temporary and would unlikely affect the private consumption trajectory. As such, they maintained their expectation that Bank Negara, the central bank, would hike the OPR in the second half, by 25 basis points each time.



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