KUALA LUMPUR – Malaysia’s economy growth is predicted to expand by 5.5% this year, fueled by domestic demand recovery, export increase, and border reopening, according to a World Bank report.
The report stated that the external sector will continue contributing to the growth rate. The areas of note are electrical and electronic goods (E&E) and medical rubber gloves.
It cautioned, however, that growth might drop to 4.8% if global conditions deteriorate further as a result of the Russia-Ukraine crisis, financial tightening in the US, and China’s structural slowdown.
Additionally, there is a danger that supply chain disruptions could intensify and that more severe COVID-19 variants will emerge.
“While the economy is predicted to recover, COVID-19, food inflation and floods are expected to impede progress on the poor and vulnerable people’s well-being,” according to the World Bank’s East Asia and Pacific (EAP) Economic Update April 2022, headlined “Braving the Storm.”
In 2021, the World Bank expected Malaysia’s GDP to increase 5.8% this year, compared to 3.1 percent last year.
It said that a monetary policy shock in the United States, which is projected to raise interest rates by at least 25 basis points, is likely to reduce Malaysian growth by as much as -0.4 percentage points.
“The earlier-than-expected tightening of monetary policy in response may make recovery even more difficult in other nations. Financial conditions in the United States are extremely relevant for emerging EAP countries, particularly those like Malaysia who rely heavily on short-term capital flows.
“The possibility of capital outflows, which might put pressure on their currencies, could result in premature financial tightening,” the report stated.
On the one hand, the financial shock caused by the Ukraine war may result in a more gradual tightening of US monetary policy than anticipated, notwithstanding the increased inflationary pressures.
GDP growth in the EAP region is predicted to decline to 4% this year, down from a previous forecast of 5.4% in October last year.
Growth is forecast to slow in both China and the US, owing to structural slowdown and regulatory regime changes, as well as cyclical slowdown.
“As a result, both are likely to contribute less to global growth in 2022 and 2023 than they did in 2021, when output rebounded from the COVID reduction.
“However, China’s absolute size and the US’ contribution to growth are anticipated to be nearly as significant as in the pre-COVID years;’ it stated.
Meanwhile, a 1% decline in US growth is anticipated to have a slightly higher impact on the EAP region (0.4 percentage points) than an equivalent decline in Chinese growth (0.3 percentage points).
China’s GDP forecast for 2022 has been lowered to 5% from 5.4% in October 2021.
Additionally, a 0.9% reduction in G7 growth implies lower export demand for EAP nations, suggesting a 0.6% decline in their average growth.
The World Bank added that the Russia-Ukraine conflict and associated sanctions are likely to raise international food and fuel costs, thereby harming consumers and growth.
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