PETALING JAYA: Experts agree that challenges – both internal and external – will continue to plague the Malaysian economy.
However, views differ on how high such risks will be or whether or not they will take the country into another recession.
A Singapore-based economist agreed with the assertion by Bursa Malaysia chairman Abdul Wahid Omar that Malaysia is unlikely to go into recession. On the other hand, a Malaysian economist sees a stagflation on the horizon.
Senior fellow at Singapore’s ISEAS-Yusof Ishak Institute Lee Hwok Aun expressed confidence that Malaysia could avoid a recession based on the healthy growth of the country’s gross domestic product (GDP).
In its quarterly report released on Aug 12, Bank Negara Malaysia said the GDP registered an 8.9% growth in the second quarter of 2022, up from 5% in the first quarter.
However Nazari Ismail, an economist at Universiti Malaya, said a stagflation was more likely to occur.
Wahid had, in his presentation at the Invest Malaysia forum on Sept 14, said that while the US-China trade tension, the Ukraine crisis, and the tightening monetary policies by various central banks could cause an economic slowdown, Malaysia’s well diversified economy would withstand the pressure.
Lee noted that Malaysia’s GDP growth was contributed by the services and manufacturing sectors, both of which were domestically oriented and driven by steady demand for exports.
“Services constitute the bulk of the economy and are more domestically oriented and less dependent on global markets,” he said, adding that while the services sector by itself could not guarantee that Malaysia would avoid a recession, it could be a buffer against turbulence in the global markets.
The manufacturing sector, which accounted for 24.3% to the gross domestic product in 2020, is regarded as another important contributor to economic recovery.
“Historically and even in the present, exports more generally have helped Malaysia recover from recessions or financial crises. Exports were a major factor that led to the recovery from the 1997-98 crisis as well as the 2008-09 recession.”
Lee did not rule out the possibility that the country could experience a slowdown due to several internal and external factors.
“We may see a slowdown, depending on geopolitical affairs, supply chain bottlenecks, labour shortages and a pause in investment pending the general election,” he said.
However, he said it would take a major disruption to cause an economic contraction.
He also expected public spending to be expansive next year, given that Budget 2023 will be the last federal budget before the next general election.
Nazari warned that Malaysia could be affected by an economic slowdown as it depended on exports to China and Singapore. It has been reported that these two countries are bracing for a sharp slowdown next year.
“A global economic slowdown will affect these two important markets, which will in turn affect Malaysia,” he said.
A slowdown, he said, would be compounded by the current high household debt which could see a rise in bankruptcy and downward trend in consumption.
Nazari said that coupled with the recent increase in the overnight policy rate, it would be challenging for Malaysia to achieve strong growth in 2023.
“That is the worst case scenario. If anything, stagflation is a strong possibility,” he said.