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       PETALING JAYA: The outlook of the Malaysian economy remains “moderate” at best in 2022 although supply chain disruptions have started to ease.

       While business activities have resumed and consumer sentiment is picking up, economists said a number of headwinds will continue to weigh on the already bumpy economic recovery.

       These include inflationary pressures and the developments surrounding the Omicron variant of Covid-19.

       As a result, there is a chance for the domestic economy to grow slower than the government’s projection of 5.5% to 6.5% this year.

       The government slashed its growth forecast for 2021 to 3% to 4%, down from its initial target of 6.5% to 7.5% last year.

       Economist Manokaran Mottain, (pic below) who expects a moderate outlook for Malaysia, cautioned that there are various challenges for the domestic economy, moving ahead.

       Manokaran Mottain

       He projects the national gross domestic product (GDP) to expand by only about 4% in 2022, significantly lower than what the government is expecting.

       “Supply chain disruptions will continue for now, and it will take another three to six months to normalise significantly,” he said.

       He also pointed out that the recovery from floods in many parts of the country, if not expedited, will drag economic recovery.

       “The financial assistance to the flood victims is still slow and many have yet to receive the money as promised.

       “This should be accelerated and the government should not be too stringent on the criteria to qualify for assistance,” said Manokaran, who is also a director of Rising Success Consultancy.

       Looking ahead, he said that the fast and efficient implementation of Budget 2022 measures would help to support growth.

       Meanwhile, Centre for Market Education CEO Dr Carmelo Ferlito (pic below) said that the economy needs a strong push from private investments to achieve sustainable growth.

       Carmelo Ferlito.

       Tax reforms are also required, centred on cutting income tax, reintroducing the goods and services tax as well as reforming and rationalising incentive schemes.

       “It is also very important that Asean countries work together to implement a coordinated strategy which must start with freedom of movements for business people and labour,” he said.

       Ferlito added that the Malaysian economy is seeing “very positive and encouraging” signals at the moment.

       “The economy is rebounding well after the end of the lockdowns and we can hope this will continue in 2022 if external shocks are avoided,” he said.

       Ferlito said the immediate and biggest threats facing the Malaysian economy are the government’s response to Omicron and inflation.

       “In this sense, further lockdowns must be avoided, while on inflation, the government will need to embark on a gradual plan of spending cuts,” he said.

       Since 2020, the government has announced eight stimulus packages worth RM530bil cumulatively as a response to the Covid-19 induced crisis.

       The government has also tabled two annual budgets, namely Budget 2021 and Budget 2022, with a value of RM322.5bil and RM332.1bil respectively.

       The unprecedented massive fiscal injection, while aimed to regrow the economy to pre-pandemic level, has stretched the government’s finances.

       Manokaran said there is little room for the government to dish out more assistance, especially in tackling rising inflationary pressures.

       A reduction in government spending, moving forward, will not only help to bring the fiscal space under control but also address the higher inflation.

       The national fiscal deficit is expected to dip to 6% of GDP in 2022 as the government tries to control its expenditure amid the economic recovery.

       AmBank Research expects the overall macro policy to remain pro-growth this year, supported by an expansionary Budget 2022 and stimulus measures of RM530bil, coupled with the rollout of the 12th Malaysia Plan.

       Should the economic sectors namely manufacturing, construction and services continue to outperform expectations in the coming months, AmBank Research said this will provide a further uplift to the economy.

       The research house expects a moderate outlook for Malaysia in 2022, with “room for revision.”

       It projects a 5.4% growth in 2022 as the base case, with the upside at 6% and downside risk at 3.5%

       Malaysia’s base case growth of 5.4% is higher than AmBank Research’s forecast for China at 5%.

       Meanwhile, the United States, United Kingdom and Japan are expected to grow by 4%, 0.6% and 2.3% respectively in 2022.

       AmBank Research said Malaysia’s growth momentum this year will be supported by the positive impetus of high Covid-19 vaccination coverage and the ongoing booster rollout, aside from the low base of 2021.

       “Domestic demand would benefit from private consumption through higher household income, improved job market, higher minimum wage and continued direct cash assistance by the government to targeted groups (9.6 million recipients) and a special payment to civil servants and retirees (2.3 million recipients).

       “Private investment will remain the growth engine.

       “It would benefit from the government’s effort to promote quality investment, fiscal injection, business capex expansion driven by a more optimistic outlook, and the implementation of approved foreign direct investments in the manufacturing and services sectors due to a better global and domestic environment,” said AmBank Research in a note yesterday.