Published on 15 Apr 2022.
RAM Ratings expects Malaysia’s economic growth to come in at 5.8% in 2022, lowered from its earlier projection of 6.8% in December 2021. The revision mainly reflects slower global economic growth amid the Russia-Ukraine war, the drag on consumption demand from higher inflationary pressures, and lower overall output due to protracted labour shortages.
While still on a firmer recovery path, Malaysia’s growth prospects are moderately weighed down by the ongoing war in Ukraine. Though Malaysia’s direct trade links with Russia and Ukraine is sub-1% of its total trade, the greater impact will be from repercussions on demand from the rest of the world. The ensuing supply chain disruptions and surge in inflation from sanctions on Russia will dampen global economic growth, particularly in Europe. This in turn will affect Malaysia as Europe constitutes about 12.5% of overall demand for Malaysia’s value-added exports (direct and indirect).
The spike in commodity prices is a key factor pushing up inflation globally, though the passthrough to domestic inflation is tempered by Malaysia’s existing price control measures and petrol subsidies. We project headline inflation to remain at 2.5% for 2022 (2021: 2.5%), but underlying inflation this year will be largely driven by higher food prices. This is expected to modestly restrain the rebound in household spending in 2022.
Domestic demand will be the key economic driver this year, benefiting from robust vaccination and booster coverage, continued improvement in the labour market and ongoing policy support measures. The encouraging and steady rise in the employment rate and the transition to endemic phase will help to support a sustainable recovery. Investments are anticipated to accelerate on continued capacity building, as signalled by a doubling in investments approved to RM306.5 bil in 2021 from RM167.4 bil in 2020. Meanwhile, export demand will stay strong thanks to the semiconductor supercycle.
Figure 1: Inflationary pressure in 2022 mainly
driven by food prices
Sources: RAM, Department of Statistics Malaysia
LHS chart: FNAB = Food and Non-Alcoholic Beverages; FHEM = Furnishing, Household Equipment and Maintenance
The emergence of more virulent and vaccine-evading COVID-19 variants of concern, further escalation of the war in Ukraine, prolonged lockdowns in China and severe supply chain disruptions continue to present downside risks in 2022. A faster than expected return of foreign tourists is a potential upside.
Summary of RAM’s key projections
Sources: Department of Statistics Malaysia, Bank Negara Malaysia, Bond Pricing Agency Malaysia,
Ministry of Finance Malaysia, RAM
Note: 2022f figures are RAM projections
Woon Khai Jhek, CFA
(603) 3385 2512
(603) 3385 2505
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