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Malaysia’s economy on the rebound, driven by strong private consumption

Malaysia is on an economic rebound, thanks to the relaxation of COVID – 19 restrictions and the resumption of daily life and economic activities, said economists.

They pointed to Bank Negara Malaysia’s (BNM) announcement last Friday that the gross domestic product (GDP) grew by 8.7% last year – the highest annual growth rate posted by the country in the past 22 years after the 8.9% recorded in 2000.

Sunway University economics professor Dr Yeah Kim Leng said from the demand side, strong private consumption, which expanded by 11.3%, was the main driver of growth, accounting for 6.8 percentage points of the 8.7% growth last year.

“The major relaxation of COVID – 19 restrictions and the release of pent – up consumer demand amid the resumption of daily life and economic activities contributed significantly to domestic demand-led GDP growth last year.

“Strong exports and accompanying imports also played a part in sustaining job and wage growth as evidenced by the sturdy 8.1% expansion in manufacturing, although it eased from the 9.5% chalked up in 2021.

“Although the agricultural sector expanded marginally to 0.1% last year from -0.2% in the previous year, the positive growth in all sectors of the economy also contributed to the sterling growth performance,” he told theSun.

Yeah said the economy rebounded in 2022 to above its potential growth of 5%-6%, following a moderate growth of 3.1% in 2021.

“The GDP this year is projected to be low due to considerable downside risks, especially a sharper-than-expected global slowdown that could tilt growth to between 3% and 4%.”

To keep our GDP at a sustainable level, the government should focus on addressing immediate challenges such as the shortage of foreign workers, he added.

“The government should also tackle issues such as the high living costs faced by low-income groups, rationalise subsidies while maintaining prudent and efficient spending, and enhance good governance and the delivery of efficient government services. These can strengthen the confidence of investors in the country.

“To accelerate growth, there should be a steady focus on attracting high-quality investments, boosting supplies of skilled labour, raising SME productivity and competitiveness, and fast-tracking digitalisation and technology adoption in all industries. These will help the country move up the value chain, and are just some of the strategies required to restructure the economy and raise the country’s growth potential and international competitiveness,” he said.

Universiti Utara Malaysia professor of economics Dr K Kuperan Viswanathan said political stability is important for continued growth and to attract sound and sustainable green foreign direct investments.

“Concentrating on policies that emphasise greater equity and efficiency in the economy, and promoting greater fiscal prudence and effective governance will ensure stable growth. We should continue to invest in infrastructure and good education. It will be the best blueprint for Malaysia’s future growth,” he said.

Kuperan said BNM is not likely to raise the overnight policy rate (OPR) as inflation is under control. “Any rise in the OPR will constrain economic growth. It is a trade-off between lower inflation and higher economic growth. It is more important for the government to keep inflation in check because its effects are more damaging on the masses and the poor in particular.”

Last month, BNM maintained the OPR at 2.75% during its first meeting after raising the rate by 25 basis points four times last year from 2.5%. The last hike was to increase the OPR to 2.75% in November last year.

BNM said the decision not to raise the OPR for a fifth time was to allow it to assess the impact of the past cumulative OPR adjustments, given the lagging effects of monetary policy on the economy.

  • The Sun Daily