Malaysia’s recovery to be greatly impacted by external factors

11 Jul 2022

Ongoing global economic challenges, such as the war in Ukraine and skyrocketing inflation, will hamper Malaysia’s recovery, according to economists. 

HELP University economist Paolo Casadio told The Star: “We estimate Malaysia’s gross domestic product (GDP) growth rate for 2022 to be 3.5% in the baseline scenario (50% probability), implying an economic contraction in the second and third quarters of this year.” 

He added that the slowdown in China during Q2 had already had a considerable impact on exports, resulting in a contraction on a quarterly basis. 

“In a risk scenario (40% probability), considering a ‘catastrophe’ happening in the international economic and financial system, we consider another contraction happening in the third quarter and probably in the fourth quarter as well, resulting in a full-blown recession. This will not affect Malaysia only, but it will be worldwide,” Casadio added. 

In terms of Malaysia’s GDP outlook for the second half of this year, Malaysia University of Science and Technology professor Geoffrey Williams believes there will be three scenarios. 

“The upside scenario is where GDP is expected to grow 5% this year, as forecast by the government and Bank Negara. This is based on the assumption that everything will go smoothly and converge to a pre-pandemic scenario. 

“We believe there is a 10% probability of this scenario occurring,” he added.

Within a baseline scenario (with a 50% probability), Williams said there may be “some persisting international factors” culminating in downwardly revised growth around the world. 

Whereas in a downside scenario (40% probability), he warned of a “catastrophe” impacting the international economy: “The catastrophic events can be many – geopolitical, with an extension of the war, financial, with a stock market or a Dollar crash, political turmoil especially in the United States before the mid-term elections or economic, with a full-blown recession in some European countries.” 

He continued that in a baseline scenario, GDP growth is forecast at 3.5% and 4.5% in 2022 and 2023, respectively: “In the catastrophe scenario, the Malaysian economy is sliding into a technical recession (in the second and third quarters) and growth close to 0% for the whole year, following many countries around the world.”