Malaysia’s economy sees best growth in 22 years

The public and analysts don’t all agree with the level of optimism amid risks and difficult daily life of many, but central bank says no 2023 recession due to strong economic progress
Full-year growth came in at 8.7 per cent in 2022, almost triple the previous year, and the quickest pace since the 8.9 per cent expansion in 2000

Malaysia

Joseph Sipalan

Published: 8:30pm, 10 Feb 2023

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Malaysia’s central bank on Friday said the economy would not fall into a recession this year, announcing stronger-than-expected growth in 2022 as the country finds a stronger footing to edge out of the pandemic-induced economic crisis of recent years.

Some analysts are warning against too much optimism, noting that domestic demand remained muted and there were risks for its important electronics industry arising from lay-offs and overall poor sentiment surrounding the global tech sector.

Full-year growth came in at 8.7 per cent in 2022, according to data compiled by the Department of Statistics Malaysia, nearly triple the 3.1 per cent recorded the previous year and the quickest pace since the 8.9 per cent expansion in 2000.

Bank Negara Malaysia (BNM), the central bank, had earlier forecast full-year growth to come within the range of 6.5-7 per cent.

Central bank Governor Nor Shamsiah Mohd Yunus said a recession was not expected in 2023 as the global economy has continued to grow despite earlier expectations of a worldwide slump due to the combined effects of the Ukraine war, global supply chain disruptions and red-hot inflation over the past year.

“We are going to see continued recovery in the labour market, and employment and income will continue to grow,” she told a press conference.

Shoppers in Chinatown in Kuala Lumpur, Malaysia, in January. Photo: Bloomberg

The governor said the growth momentum is expected to moderate this year on slower external demand but remain in positive territory, driven by domestic demand and bolstered by strong interest from foreign investors and a projected “V-shaped” recovery in tourism.

“All these factors will be more than enough to offset risks that will cause slower global growth.”

Malaysia’s 2022 economic performance came in better than expected, and should continue to be resilient in the face of possible recessions in the United States and Europe, according to Mohd Afzanizam Abdul Rashid, head of economics and research for the Employees Provident Fund, which manages retirement funds for private sector workers.

He said the ongoing war between Russia and Ukraine is likely to continue to weigh down on business sentiment due to higher commodity prices and supply chain disruptions.

“Notwithstanding that, the reopening of China’s economy could benefit Malaysia’s tourism industries which then could result in more activity in the aviation, food and beverages, hospitality, and to some degree, healthcare industries,” Mohd Afzanizam said.

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“Against such a backdrop, we expect Malaysia’s fiscal and monetary policies will continue to remain expansionary and accommodative in order to sustain the growth momentum in 2023,” he added, noting that 2023 economic growth was forecast at 4 per cent.

The central bank did not give an updated growth forecast for 2023, saying that it will be announced when Prime Minister Anwar Ibrahim tables the revised annual budget later this month.

Headline inflation came in at 3.3 per cent in 2022 and is expected to moderate this year, albeit remaining at elevated levels.

The central bank did not discount the possibility of another hike to its overnight policy rate (OPR), which it held at 2.75 per cent in January – bucking broad expectations of another 25 basis point hike after raising it by a total of 100 basis points since May last year.

“This pause would allow us to have greater clarity and take stock of cumulative increases to the OPR and take into account the economic environment and how it affects the growth and inflation outlook,” Nor Shamsiah said.

Some, however, are not convinced by the central bank’s hopeful outlook for the economy this year.

Any benefit from China’s reopening may not be able to cover the shortfall from weak demand for Malaysia’s electronics, which account for a third of Malaysia’s exports, and domestic demand is likely to remain muted as households and the corporate sector grapple with higher borrowing costs, said Shivaan Tandon, Emerging Asia economist for research firm Capital Economics.

On the streets, the sentiments are even less optimistic.

Pedestrians walk past shops in Kuala Lumpur in January. Many people are struggling to get by. Photo: Bloomberg

“The past two years have been horrible. I used to work in documentary filmmaking, and before the pandemic we could earn up to 1,500 ringgit a day (US$345). The rate is now 50 ringgit (US$11). All the data that the government and Bank Negara use to show the economy is recovering is just data. It doesn’t mean anything to us B40,” said Faizal Ahmad, referring to the term used to describe Malaysia’s bottom 40 per cent of earners.

He now does e-hailing – combining various transport services on a single online platform – and makes food and product deliveries to get by.

“At the end of the day, the government will do what it needs to do, and we will do whatever we can to survive,” said the 46-year-old. “The rest, we leave it up to god.”

Additional reporting by Su-Lin Tan