KUALA LUMPUR: Following the harrowing two years brought upon by the Covid-19 pandemic, all eyes are on 2022 for Malaysia to kickstart a much needed economic recovery.
While the general consensus is for the economy to grow more than 5% next year, economists and industry experts have, however, cautioned that the recovery path will not be without challenges.
According to RHB Investment Bank Bhd regional equity research head Alexander Chia, the recovery path will continue to unfold going into 2022, as a new growth cycle emerges.
“Covid-19 will remain a major source of volatility for global markets. This is as investors grapple with domestic policy and regulatory risks, the perilous state of public finances, an evolving political backdrop and broader macro risks stemming from inflation, the sustainability of the global recovery and state of China’s economy,” he said in a market strategy note yesterday.
Chia forecast Malaysia’s gross domestic product (GDP) to grow more than 5.5% in 2022, helped by the low-base effect, an efficient immunisation programme, the withdrawal of lockdown restrictions, high pent-up demand and gradual reopening of international borders.
“While China risks remain, the United States will anchor global growth, driven by robust consumer spending, a new inventory cycle and large infrastructure spending package.”
Malaysia University of Science and Technology professor Geoffrey Williams forecast three possible scenarios for Malaysia in 2022.
“One scenario is for a strong rebound, as the Malaysian and global economies open up, pent-up consumption is spent and trade flows begin to grow.
“In this case, we would have a growth of around 6% and 7% next year. I think this is too optimistic and many forecasts are already being revised downwards. I put only a 10% chance of a strong rebound like this,” he told StarBiz.
Williams added that the second potential scenario would be if the Omicron variant has a huge, adverse impact on trade flows and international travel.
“This could cause a further contraction and recession as in the last two years. I think the danger is more from a policy overreaction than from Omicron itself, but this scenario has a 30% chance of unfolding.”
The final scenario is if the impact of the Omicron variant is less severe and results in a slower economic recovery.
“There has been a lot of structural damage to the economy with many firms closing. Malaysians have less pent-up consumption because of job losses and Employees’ Provident Fund withdrawals.
“We would see slower growth of around 3% or so next year. This is our central forecast and we believe that there is a 60% chance of this happening.”
According to Hong Leong Investment Bank (HLIB) Research, the economy is expected to grow beyond 5.5% in 2022.
“This sits at the lower end of the Finance Ministry’s official target of between 5.5% and 6.5%, reflecting fluidity of the virus’ evolution to the economy.
“With the need to drive economic recovery, we feel the more gradual pace of projected fiscal consolidation is realistic.”
Bank Negara is expected to begin its upward normalisation in the overnight policy rate from the fourth quarter of 2022, according to HLIB Research.
“We expect a 25 basis points hike to 2%, given our view that economic conditions would be more entrenched by then while GDP would have also recovered to pre-pandemic levels.
“Furthermore, we project inflation to be more modest in 2022 with the Consumer Price Index forecast at 2%, versus 2021’s 2.4% on expectations of government intervention to limit the rise in cost of living.
“On the ringgit, we expect a slight depreciation bias with the average 2022 dollar-to-ringgit at 4.16, compared with the 4.15 average for 2021.”
While corporate Malaysia has much to cheer with the reopening of the economy, HLIB Research said the prosperity tax and stamp duty hike in Budget 2022 ended up being an unpleasant surprise.
“Next year could possibly see the 15th General Election (GE15) being called, with the market generally performing positively from six months running up to the polls.
“A convincing mandate to the victor could be a market game changer as it paves the way for necessary bold policy moves.”
The research house added that it anticipates 2022 to be “another choppy year” for the market, as a “tug of war” manifests between Budget 2022’s market headwinds and economic reopening.
With the FBM KLCI slipping 7.9% year-to-date, UBS said Malaysia is one of the worst performing markets in the region this year.
“For end-2022, we have an FBM KLCI target of 1,600 points, based on a 14.6-times, 12-months forward price-to-earnings ratio and a 2020-to-2023 earnings compounded annual growth rate of 23%.
“We believe investors will be focusing on three key themes next year, namely the reopening of the economy, output inflation and rising yields, although a Covid-19 resurgence could result in bumps along the way.”
Williams, meanwhile, said the performance of the market would depend on several factors.
“The main issue is not to over react to Omicron and to allow the economy to open and recover.
“We need some time for recovery, stability and growth, not only for businesses but also for the consumers. There should be no need for fiscal or monetary policy changes until the situation is clearer.”
Additionally, he said investor sentiment will also be affected by factors such as the general global environment, specific local prospects for profitability and growth in local companies, as well as comparisons with other regional markets.
“Some of the issues related to governance, labour rights and environmental, social and governance in general have not been good news for the general look and feel of Malaysia, so that should be a focus for improvement.”