Malaysia Economy Rebounds While Inflation, Growth Risks Eyed

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(Bloomberg) — Malaysia said its economy returned to expansion at the end of 2021 amid easing pandemic restrictions, while flagging risks for this year from inflation, further virus disruptions and global growth.

Gross domestic product growth in the December quarter rebounded to 3.6% from a year earlier, Malaysia’s central bank said Friday, beating the 3.3% median growth expected in a Bloomberg survey. That pushed full-year GDP up 3.1%, within the official forecast range of 3%-4%.

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Growth is expected to accelerate going forward as Malaysia rolls out vaccine booster shots and prepares to reopen its borders. The country is poised to benefit from stronger global demand and higher private spending in 2022, according to the central bank.

All sectors of the economy showed improvement in the last quarter, Bank Negara Malaysia Governor Nor Shamsiah Mohd Yunus said in a briefing Friday, adding that momentum through this year will be driven by global demand and trade, as well as resumption of domestic activity.

“Going forward, Malaysia’s GDP should be able to record respectable growth, given there are likely to be fewer restrictions on mobility following the indication that international borders would reopen in March,” said Mohd Afzanizam Abdul Rashid, chief economist at Bank Islam Malaysia Bhd. The economy will likely grow 5.5% in 2022, he said, while flagging risks to the forecast from supply chain issues and the prospect of higher borrowing costs.

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Malaysia’s main equity index rose 0.2% at the midday break, poised for its biggest weekly gain this year. The ringgit fell 0.1% to 4.1880 per dollar while 10-year bond yields were up two basis points to 3.72%.

Policy Support

Shamsiah added that cost pressures remain from high commodities prices and supply-chain issues, and that inflation is expected to edge up this year while its core measure will remain “modest.” She cautioned that there would be an impact on the economy from “premature withdrawal” of monetary policy support.

“We will remain vigilant of the latest developments and any new data,” she said. “Any adjustment to the degree of accommodation will depend on how these developments will affect the growth and inflation outlook.”

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Given the nation’s current-account surplus, Bank Negara Malaysia can “still afford to hold out a bit more unlike some of its EM peers” on raising rates, said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore. “We see a rate hike to come only in 3Q, and by a muted 25 basis points this year.”

Risks to Malaysia’s outlook include slower-than-expected global growth and financial market volatility, higher commodity and energy prices and worsening supply-chain disruptions, as well as tighter pandemic restrictions domestically, Shamsiah also said Friday.

The official GDP forecast this year is for 5.5%-6.5% expansion, with the central bank set to announce any revisions on March 30.

Avoiding Lockdown

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Malaysia has said it will avoid a repeat of last year’s lockdowns that pushed GDP into contraction for two quarters. The country’s rising vaccination rate — about 54% of the adult population had received booster shots as of Thursday — has kept hospital admission rates manageable amid the omicron wave.

That prompted a government advisory council to propose the country reopen its borders by March, potentially boosting consumer spending and benefiting key sectors such as banking and construction. That came days after the Health Ministry said it would recommend such a move only after the booster rate improved .

Compared to the previous three months, the economy last quarter grew 6.6% on a seasonally adjusted basis, compared to a 6.3% median expectation in the Bloomberg survey.

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