StanChart expects Malaysia's economy to grow 7% in 2022

KUALA LUMPUR (May 17): The Malaysian economy is expected to return to above pre-Covid-19 pandemic levels with the 2022 gross domestic product (GDP) growth forecast up at 7% from 6.2% given stronger-than-expected growth in the first quarter (1Q22), said Standard Chartered Bank (StanChart).

The bank also maintained that overnight policy rate (OPR) hikes in 2022 will total 75 basis points, with two more hikes in July and September 2022 respectively, bringing the OPR up to 2.5% by end-2022.

StanChart said the “growth recovery was broad-based”, which saw all components expanding quarter-on-quarter (q-o-q), with the exception of investment and trade in services remaining below pre-pandemic levels as of 1Q22.

"In terms of industries, 18 out of 21 sectors expanded q-o-q, and we estimate that 74% of the economy is above pre-Covid-19 levels," StanChart said in a research note on Tuesday (May 17).

The bank noted that the labour market had also continued to recover, with strong employment growth and tighter conditions translating into higher wage growth.

It said the economic and labour market recovery “justifies” the move by Bank Negara Malaysia (BNM) to begin the process of normalising monetary policy from emergency settings.

"We expect the process of normalising monetary policy from emergency settings to continue. While inflationary pressure is not substantial, the current low policy rate is not seen as commensurate with the economic recovery," it said.

StanChart noted that BNM may also want “to take advantage of the robust growth to build policy space” as the policy guidance suggests that more rate hikes are likely.

However, StanChart lowered its 2023 GDP growth forecast to 4.2% from 4.5% previously due to higher base effects.