External factors will play a big role in GDP growth

KUALA LUMPUR: Economists are cautious about the outlook for the economy in the second half of 2022, in light of lingering challenges such as the Russia-Ukraine war, soaring inflation, supply chain disruptions and the weaker ringgit.

HELP University economist Paolo Casadio believes that global economic challenges and uncertainties will disrupt the trajectory of recovery in Malaysia and other countries around the world.

“We estimate that Malaysia’s gross domestic product (GDP) growth rate for 2022 will be 3.5% in the baseline scenario (50% probability), implying an economic contraction in the second and third quarters of this year,” he told StarBiz.

Casadio noted that China’s slowdown in the second quarter of the year was already having a significant impact on exports. This, he said, will translate into a contraction in growth on a quarterly basis.

“In a risk scenario (40% probability), given a ‘catastrophe’ unfolding in the international economic and financial system, we see another contraction in the third quarter and probably in the fourth quarter as well, resulting in a recession on a large scale.. It will not only affect Malaysia, but it will be worldwide.

In predicting Malaysia’s GDP outlook for the second half of 2022, Geoffrey Williams, a professor at the University of Science and Technology Malaysia, predicts three types of scenarios.

In predicting Malaysia’s GDP outlook for the second half of 2022, Geoffrey Williams, a professor at the University of Science and Technology Malaysia, predicts three types of scenarios.

“The upside scenario is where GDP is expected to grow by 5% this year, as projected by the government and Bank Negara. This is based on the assumption that all will go well and converge to a pre-pandemic scenario.

“We believe there is a 10% probability of this scenario occurring.”

In a baseline scenario (with a 50% probability), Williams said there could be “some persistent international factors” that would lead to a downward revision to growth in major regions of the world.

Finally, in a downside scenario (40% probability), Williams warned that it could be a “catastrophe” affecting the international economy.

“Catastrophic events can be many – geopolitical, with an extension of war, financial, with a stock market or dollar crash, political unrest especially in the United States before the midterm elections or economic, with a recession in large scale”. in some European countries.

In the base scenario, Williams said GDP is expected to grow 3.5% and 4.5% in 2022 and 2023, respectively.

“In the doomsday scenario, the Malaysian economy slides into a technical recession (in the second and third quarters) and growth close to 0% for the whole year, similar to many countries around the world.”

The director general of the Center for Market Education, Carmelo Ferlito, meanwhile said that the reopening of the economy has played a positive role in different economic indicators, in particular domestic consumption.

“So the aggregate will be good, but I think investments will still play a marginal role,” he said.

Carmelo Ferlito, senior researcher at the Institute for Democracy and Economic Affairs (IDEAS).  He is also Commercial Director for Southeast Asia at Petersime NV (Belgium) and Assistant Professor at INTI International College Subang, where he teaches

Malaysia’s economy grew by 5% in the first quarter of 2022, supported by increases in domestic and external demand as well as a recovering labor market.

During the quarter, monthly GDP increased by 4.3% in January, 5.2% in February and 5.4% in March.

The labor market posted an unemployment rate of 4.1%, an improvement of 0.2 percentage points from the previous quarter, attributed to the implementation of a wage subsidy program worth more than RM20 billion and to successful job creation initiatives such as JanaKerja and JaminKerja.

The central bank forecasts GDP growth for 2022 between 5.3% and 6.3% (2021: 3.1%).

In a statement released on Saturday, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said the country’s economy is expected to continue to strengthen in the second quarter of this year, following encouraging GDP growth of 5% in the first quarter. , including the continuous improvement of wholesale and retail,

He pointed out that the economy is gradually improving and has started to grow based on various indicators for May 2022.

To accelerate the momentum of recovery, Tengku Zafrul said the Ministry of Finance has launched engagement sessions with the aim of establishing measures that take into account the needs of various stakeholders.

“The 2023 budget will focus on structural reforms and building economic resilience. With its theme “Strengthening Recovery, Facilitating Reforms Towards the Sustainability of Keluarga Malaysia’s Economic Resilience and Wellbeing”, the government will continue to focus on the wellbeing of people, businesses and the economy. “, did he declare.

Meanwhile, Ferlito said economic growth in the first quarter was mainly driven by private consumption and government spending.

“Instead, investment has remained stagnant and that’s the worrying part of the growth so far.

“We need to look at the micro-foundations behind the macro-aggregates in order to get a better picture of a country’s economic performance,” he said.

Going forward, Ferlito said international factors will play an important role in Malaysia’s GDP growth.

“China’s policy on Covid will certainly impact Malaysia as it is our country’s biggest trading partner. Supply chain disruptions will continue to play a role.

Domestically, Ferlito said poor policymaking and political uncertainty could keep investors at bay.

Williams noted that there had been a big hit to the underlying structure of the economy in Malaysia due to two years of lockdown.

“We see some symptoms of this in the food crisis and the way businesses cannot respond quickly. This will slow down market growth and flexibility.

“We also fear that the central bank will follow the Federal Reserve and raise rates, which will affect loan repayments for consumers and businesses and slow growth and investment.”

Shirlene J. Manley