KUALA LUMPUR: Malaysia's economy is expected to grow at a faster pace of 6.2 per cent this year than the estimated 3.5 per cent in 2021, thanks to a successful vaccination programme.
Standard Chartered Bank Asean and Southeast Asia chief economist Edward Lee said the recent flood crisis would not pose a considerable risk to Malaysia's growth forecast this year.
Lee said the reopening of the global economy should sustain external demand, which will support Malaysia's exports from last year until 2022, but he cautioned that the fast-spreading Omicron variant may temper the overall global recovery.
"The domestic demand will pick up in 2022 on better job prospects and wage outlook. The investment activity will also continue to rise with improved clarity on domestic economic reopening and strong foreign direct investment (FDI).
"Key downside risks to this growth include the pandemic (the contagion of the Omicron variant) and faster-than-expected monetary tightening," he told a virtual press conference at Standard Chartered Bank's 2022 global research briefing today.
According to Lee, Malaysia's headline inflation was expected to moderate in 2022 on a high base, but recent floods posed an upside risk in early 2022.
The bank is looking at a lower inflation number this year supported by Malaysia's faster economic recovery due to successful vaccination rollout, supportive policy support and strong external demand (goods and investment).
"We do expect the monetary policy to tighten in the second half of the year. However, I think the overnight policy rate (OPR) will remain lower with key interest levels of 4.3 per cent," he said.
Meanwhile, Lee said Malaysia 2022 Budget remained expansionary, with spending (excluding Covid-19 funds) projected to increase 10 per cent.
"We see revenue upside from the better collection as growth recovers in 2022, as well as one-off revenue from windfall tax.
"Meanwhile, the development expenditure is projected to increase 22 per cent to align with the 12th Malaysia Plan," he said.
On the ringgit outlook, Standard Chartered head of ASA FX Research Divya Devesh said the bank was neutral on the local note as capital account outflows might continue to offset the sizeable current account surplus of the country.
"We maintain a 'Neutral' outlook on ringgit debt. The bond yields may face upward pressure from Bank Negara Malaysia's rate hikes and higher United States treasury yields, but these factors may be balanced by foreign demand from structural investors and local pension fund support," Devesh added.