KUALA LUMPUR – Malaysia’s economy will benefit from the reopening of its international borders starting from April 1, as well as from high commodity prices, said MIDF Research today.
However, the growth outlook could be indirectly influenced by the ongoing tension in Ukraine and prolonged disruption in global supply due to reimposition of lockdown in parts of China to control the spread of Covid-19, the research house said in a note today.
“Weaker global demand could also constrain trade outlook due to high inflation,” it added.
It noted that Malaysia’s Leading Index (LI) was flat in January 2022 after rising 2.0% year-on-year in December 2021, suggesting that economic growth momentum would be moderate in the near term.
On a month-on-month basis, the LI plunged to a seven-month low of -1.2% against +0.5% in December 2021, dragged down by weaker real imports of semiconductors and other materials and housing units approved.
The improvements in current economic conditions amid the relaxation of Covid-19 restrictions saw the coincident index accelerating to 5.5% year-on-year – the fastest growth rate since May 2021, in line with the economy reopening.
Meanwhile, AmBank Research noted that the upward pressure on inflation has continued in 2022, underpinned by rising producer costs due to the Russia-Ukraine conflict and the lockdown in China – both events adding further pressure on the already disrupted global supply chain.
“With higher raw material prices, including oil and gas prices, as well as freight charges, it is only a matter of time before we witness transfer pricing from producers to consumers.
“The question is how much transfer pricing will take place,” it said.
AmBank Research pointed out the upside to the overall inflationary pressure would now depend on whether government subsidies remain, highlighting that some new items, such as sugar, may require temporary assistance.
The bank noted that many businesses have not fully recovered from the pandemic’s impact and expect the cost of living to accelerate much faster than the pace of rising inflation.
“Overall inflation for 2022 is projected to be around 2.8% to 3.0%, and the bulk of upward pressure would come from the cost segment as opposed to consumer demand.
“Any hike in interest rates at this point would be a burden to both businesses and households, more so with the rolling back of the moratorium, coupled with an uneven economic recovery,” it added.
As for the interest rate, AmBank Research said it expects Bank Negara Malaysia to adopt a more cautious stance although the United States Federal Reserve could be aggressively raising rates.
The research house pointed out that any domestic rate hike would be more likely to take place in the second half of 2022 (2H22) to address interest rate differentials rather than looking at overall inflation.
“If liquidity turns out to be ample and risks posing potential challenges to the financial system, then it is possible the overnight policy rate will be raised by 25 basis points in 2H22,” it added. – Bernama, March 28, 2022
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