KUALA LUMPUR – Bank Negara Malaysia (BNM) believes Malaysia’s economic expansion would be between 5.3% to 6.3% this year, due to its stellar performance of 6.9% in the first half of 2022.
The central bank’s governor, Tan Sri Nor Shamsiah Mohd Yunus explained that the projected growth for the remainder of 2022 and 2023 will be mostly driven by private sector expenditure, especially in the tourism sector, which is anticipated to return to pre-pandemic levels.
During the press conference announcing Malaysia’s economic performance in Q2 2022, she said that private investment had increased by 6.3% in Q2 compared to the 0.4% reported in Q1 for this year. This is because of the improvements in structures and the ongoing expansion in machinery and equipment investments.
She stated that going forward, the supply chain is expected to recover as COVID-related disruptions and the slowing global trade have reduced some of the pressures.
“These factors would mitigate the anticipated decrease in global growth. Several variables also contribute to the robustness of our exports,” she said.
However, Nor Shamsiah stated that the growth forecast continued to confront obstacles, with a more severe slowdown in global growth being a prominent downside risk factor.
She said that it could be a result of multiple causes, including the US’s aggressive monetary tightening policy, the energy crisis in the Eurozone, and renewed lockdowns in China.
If geopolitical conflict escalates, she said that supply chain disruptions could worsen and lead to significant increases in global commodity prices.
Furthermore, the supply condition could be exacerbated by increasingly severe labour shortages or unfavourable weather conditions, she added.
Nor Shamsiah noted that heightened cost and pricing pressures could restrict household purchasing and investment activity, putting a drag on Malaysia’s economic recovery.
These would outweigh upside risks associated with a stronger labour market, rapid tourism recovery, and any additional domestic policy measures, she said.
Malaysia’s economic recovery is uneven
Nor Shamsiah said that while most economic sectors have bounced back strongly, 20% of the economy is still below pre-pandemic levels with the most prevalent industry being the construction sector, caused by higher input prices and labour shortages.
Additionally, she stated that tourism-related industries have also only recently started their recovery.
The construction sector grew by 2.4% in Q2 compared to the contraction of 6.2% posted in Q1. Meanwhile, the services sector leaped from 6.5% to 12% growth.
She said that within the labour market, the recovery for the vulnerable groups such as the youth, elderly, and low-skilled workers, is slower than the other categories.
Due to that, when the overall economy recovers, macro policies are readjusted and targeted measures will continue to support these segments of society, she explained.
Adjusting focus for sustainable growth
With Malaysia’s economic recovery on track, Nor Shamsiah stated that the priorities for policies should now also accord a stronger emphasis on longer-term policies to complement short-term measures in order to ensure a sustainable and inclusive growth that would boost the country’s resilience against future shocks.
She emphasised that these structural reforms would fuel Malaysia’s growth through creating high-quality and high-income jobs for Malaysians while at the same time improving the well-being of the citizens.
She noted that there will be several key areas of focus which include attracting quality investments that can generate high value-added activities and high-income jobs for Malaysians, producing a highly-skilled workforce prepared for the economy of the future, and speeding automation and digitalisation for the country.
BNM is also advocating for the improvement of social safety nets and social protection frameworks funded by a more targeted subsidy system, as well as the advancement of the environmental, social, and governance (ESG) agenda in order to ensure Malaysia would remain competitive on the global stage.
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