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Malaysian economy to be on firmer recovery path in 2022 — RAM Ratings

Malaysian economy to be on firmer recovery path in 2022 — RAM Ratings

08 Dec 2021

RAM Rating Services Bhd (RAM Ratings) said on Wednesday (Dec 8) the bond-rating firm projects Malaysia’s economic growth, as measured by gross domestic product (GDP), to reach 6.8% for 2022 from an estimated 3.8% in 2021 on low base effects and the country’s Covid-19 vaccination progress.

RAM Ratings analysts Jason Fong and Woon Khai Jhek said in a statement that RAM Ratings foresees the Malaysian economy staging a rebound on most fronts, riding the positive momentum of the country’s high Covid-19 vaccination coverage and ongoing vaccine booster roll-out.

“The resumption of most economic activities without the risk of further wide lockdowns is a key risk driver of RAM’s forecasts. The recent emergence of the Omicron variant, while posing a potential threat, could delay recovery but not completely derail it. The reimposition of nationwide lockdowns is not within our current base case scenario.

“Low base effects will visually prop up year-on-year GDP growth in 2022 but output in absolute terms is still below potential, anticipated to be only about 4.6% above 2019’s output. Negative output gap is expected to persist in 2022, albeit narrower than the past two years,” Fong and Woon said.

RAM Ratings estimated Malaysia’s fiscal deficit at 5.9% of GDP in 2022, in line with the government’s projection of 6% under Budget 2022 and down from the government’s 6.5% estimate for 2021.

Better economic growth prospects and significant gains from one-off and adjusted tax policies are upsides to the budget, despite the higher budget allocation for 2022, according to the analysts.

“Fiscal space remains fairly tight, with government debt projected to amount to RM1.1 tril in 2022 (or 65% of GDP) and the debt servicing burden significant at 17.2% of total projected revenues for the year (2021: 17.6%),” they said.

For comparison, Bank Negara Malaysia (BNM) said in its latest quarterly economic report dated Nov 12, 2021 that for 2021, the domestic economy is on track to expand by 3% to 4%, supported by the increase in economic activities as Covid-19-driven containment measures are progressively relaxed, amid continued policy support.

The relaxation of various pandemic-driven restrictions for fully vaccinated individuals including interstate travel will also spur tourism-related activities, according to BNM.

In addition, the strength in global demand will continue to support Malaysia’s export growth, BNM said.

Going forward into 2022, BNM governor Datuk Nor Shamsiah Mohd Yunus said in the report: “Malaysia’s (economic) growth trajectory is expected to improve given resumption of economic activities, further improvement in the labour market, continued policy support and expansion in external demand.

“The progress and efficacy of vaccinations, compliance with standard operating procedures as well as the ability to effectively contain outbreaks from any new Covid-19 variants of concern will be key to the expected recovery.”

Source: The Edge Markets

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