Strong recovery forecast in Malaysia in 2022

16 Nov 2021

Malaysia’s GDP will grow 1.5% in 2021 and 5.5% in 2022 following the release of Q3 growth, according to Fitch Solutions Country Risk and Industry Research.

While the Malaysian economy contracted 3.6% on a quarter-on-quarter basis – sending the country into a technical recession – Fitch Group forecasts this will end in Q4, which would post positive growth following the easing of restrictions for people who have been fully vaccinated.

As well as the Q4 recovery, Fitch said Malaysia’s economy should be much more robust against coronavirus next year, as elevated vaccination rates and greater resistance among the population following this year’s wave of infections.

“Domestic demand will likely see a strong recovery as a result, with private consumption in particular, benefitting from the lifting of restrictions,” according to the research organisation.

The group went on to add that the fixed investment of Malaysia will receive an additional boost from the ongoing global chip shortage, as well as government consumption being bolstered by a highly expansionary budget.

In addition, net exports should make a positive contribution to headline growth, despite the mixed risks, Fitch Group added.

At the end of last week, Malaysia announced GDP contracted by 4.5% year-on-year in Q3 this year, impacted by stringent containment curbs introduced by the government in a bid to contain the pandemic.

However, the government also forecasts Malaysia's economy to grow 5.5%-6.5% in 2022, driven by the normalisation of economic activity, resumption of projects, higher commodity prices and strong external demand, Reuters reports.

"We expect a strong recovery in the coming quarters as restrictions are eased further and normal economic life returns. This will also be supported by loose fiscal policy, with the recent 2022 budget targeting another ramp up in spending," stated Alex Holmes, emerging Asia economist at Capital Economics.

"With vaccine coverage now among the best in the world, virus cases falling back sharply and the government easing restrictions, activity is rebounding strongly."