Malaysia's economy not out of the woods yet, warns central bank chief

Kuala Lumpur

MALAYSIA'S central bank has projected that the country's economy will grow by between 5.3 per cent and 6.3 per cent in 2022, with its governor warning that there are still many uncertainties ahead that could stumble the pace of recovery.

The projected growth is slightly lower than the government's official forecast of 5.5 per cent to 6.5 per cent.

Bank Negara Malaysia's estimate is driven by robust external trade and resilient growth in private consumption ahead of the much anticipated reopening of international borders on Friday (Apr 1) as Malaysia moves transits towards treating Covid-19 as endemic.

The central bank's governor Nor Shamsiah Yunus, however, warned that Malaysia "may not yet be out of the woods" even if it successfully emerges from the pandemic.

Writing in the foreword of Bank Negara's 2021 annual report that was released on Wednesday (Mar 30), she cited the recent spate of floods in Malaysia and geopolitical conflicts as some examples of how fast the operating environment is changing.

"With new risks and opportunities continuously emerging, it is important that Malaysia's economy not only recovers, but does so in a strong and sustainable way," she said.

In dealing with future challenges, she said the central bank is "in a continued state of preparedness" to ensure that the policies and tools are ready to respond swiftly and effectively to downside risks that could derail Malaysia's economic recovery.

A key focus will be to manage potential inflationary pressures and ensure orderly financial market conditions, as policy settings are adjusted from unprecedented levels of monetary accommodation, she added.

"The silver lining of any crisis, after all, is the window of opportunity for reform and renewal," she said.

"The Financial Sector Blueprint 2022-2026, which was launched earlier this year, has set out a vision for the next 5 years as well as the strategies that will get us there."

The central bank also placed digital financial services as one of the key areas in its long-term reform strategies and has worked on a regulatory framework that is "fit-for-purpose" for new business models and technologies.

Nor Shamsiah wrote that the central bank looks forward to the "expected positive impact" from the entry of digital banks in Malaysia, with an announcement of the country's first digital banking licenses to be made soon.

On digital assets, she noted that Bank Negara has worked with other central banks and is taking active steps to learn about digital currencies, while remaining vigilant over broader developments in the space of digital assets.

Separately, in Bank Negara's 2021 economic and monetary review report, also released on Wednesday, the central bank said the rising global demand will continue to fuel external sector growth, with gross exports expected to grow by 10.9 per cent.

"Strong demand from major trade partners for electrical and electronic products amid the continued technology up-cycle and 5G infrastructure rollouts globally, will provide support to manufacturing, investment and exports," it said.

Malaysia's gross imports are expected to expand by 8.1 per cent, reflecting in part the demand for manufactured exports, an improvement in domestic investment activity and consumer spending, which will lead to higher imports of consumption and capital goods.

Bank Negara said Malaysia, being an open economy, will be affected by the impact of the military conflict in Ukraine on global growth, mainly through the trade channel.

Nevertheless, the corresponding increase in global commodity prices is expected to provide support to commodity exports and some lift to nominal incomes.