KUALA LUMPUR: Malaysia's growth momentum is expected to continue this year, fuelled by continued recovery in domestic consumption and growing foreign demand to spur economic recovery.
MIDF Research expects the country to chart a six per cent growth after recording improved trends in key economic indicators such as the Leading Index (LI) in the fourth quarter of 2021.
The firm, however, cautioned that there were downside risks to growth outlook such as the economic slowdown in China, the prolonged supply chain bottlenecks, and elevated inflation.
MIDF Research said the worsening of Covid-19 situation globally could also be another concern, as reimposition of lockdown measures may weigh down on the strength of the global economy and Malaysia's trade outlook.
"Nonetheless, we expect the authorities will not revive strict lockdown measures which could constraint the economic activities, despite the recent resurgence in local Covid-19 cases."
Malaysia's LI advanced by 1.7 per cent year-on-year (YoY) in November 2021, mainly driven by the increase in the number of housing units approved.
The rise in LI which recorded its highest growth since May 2021 signalled strengthening growth prospects for Malaysia's economy at least for the near term, said MIDF Research.
The firm pointed that the country's total trade had grown 26.8 per cent YoY in December 2021 to a new monthly high of RM216.7 billion, mainly supported by continued growth in exports.
Exports growth sustained double-digit growth at 29.2 per cent YoY for the fifth consecutive month despite moderating from November 2021.
This was in line with the expectation at moderating trends in regional exports, while imports growth moderated by 23.6 per cent YoY in December 2021.
Malaysia's trade surplus rose to RM31 billion in December 2021 with a strong rebound in exports (10.9 per cent) month-on-month (MoM) in contrast to a small decline in imports 0.4 per cent MoM.
MIDF Research said the trade surplus in Q4 of 2021 had grown 29.2 per cent YoY higher than the final quarter of 2020, indicating the recovery in business and stronger trade of goods contributed positively to growth in the last three months of 2021.
Malaysia's labour market improved further as the workforce expanded by 2.7 per cent YoY, while unemployed persons fell 9.2 per cent YoY, the largest contraction since June 2021.
This was the first-time unemployment dipped below 700,000 level and the jobless rate stayed at a pandemic low of 4.3 per cent, it added.
"The improvement of the labour market was in line with the reopening of economic activities and relaxations of containment measures which started in late September of 2021."
Meanwhile, MIDF Research said the resumption of domestic spending and continuous upbeat momentum of external demand, as well as elevated commodity prices were among key supporting the labour market recovery.
Nevertheless, it said tight immigration policies due to Covid-19 were seen as dragging factors, especially on foreign workers employment.
"Moving forward, we expect Malaysia's labour market to continue recovering given the steady rise in job-to-vacancy rate and sanguine economic outlook."
MIDF Research expects private consumption and services sector to contribute positively towards Q4 of 2021 GDP growth.
"The consumer spending is set to stay on upward trajectory in December 2021 and 2022 underpin by progressive vaccination rate, stable inflationary pressure and improving labour market."
Malaysia's headline inflation rate registered at 3.2 per cent YoY in December 2021, mainly dragged by lower price growth of non-food at 3.3 per cent YoY, while core inflation rose by 1.1 per cent YoY, the fastest pace since August 2020.
"The continous pick-up in core consumer price index (CPI) indicates the revival effects of domestic demand as various restriction measures lifted since September 2021."
On annual basis, average headline inflation rate for 2021 stood at 2.5 per cent, non-food at 2.8 per cent, food at 1.8 per cent and core inflation at 0.7 per cent.
"Moving into 2022, we expect inflationary pressure to continue on moderating trend amid dissipating low-base effects and easing global supply chain constraint," MIDF Research said.