KUALA LUMPUR: Malaysia's gross domestic product (GDP) is projected to grow by 6.0 per cent in 2022, after bracing a bumpy and underwhelming 2021 recovery from the pandemic-triggered 2020 recession.
Maybank Investment Bank Bhd (Maybank IB) analysts Suhaimi Ilias and Dr Zamros Dzulkafli said the projection was based on the assumption of sustained economic reopening for a broad-based recovery on the adoption of a 'Living with Covid-19' ethos enabled by mass immunisation.
They said Malaysia could also post a 3.8 per cent growth in economic growth in 2021, as the economy grew by 3.0 per cent in the first nine months of the year.
"Macro policy remains pro-growth. As a result, Bank Negara Malaysia's Overnight Policy Rate (OPR) to stay at a record-low 1.75 per cent well into 2022 before an increase of 25 basis points (bps) hike to 2.00 per cent in the fourth quarter (Q4) of 2022," they said in a research note today.
They highlighted that the 2022 Budget remained expansionary, with the third consecutive year of the budget deficit at over 6.0 per cent of GDP.
"We see broad policy normalisation kicking in after 2022, with a 50bps hike in OPR in 2023 and medium-term fiscal consolidation emerging to bring the budget deficit to below 5.0 per cent of GDP in 2023, and between 3.0 per cent and 3.5 per cent by 2025."
However, analysts said Covid-19 still clouds the recovery process as the latest variant of concern - Omicron would likely underscore the downside risk to the growth outlook.
"The Delta variant caused Malaysia's real GDP to shrink in the third quarter (Q3) of 2021. However, the jury is still out on whether Omicron is more or less transmissible, deadly and vaccine-resistant than its predecessors."
They said there could be the possibility of a general election (GE) in 2022.
To recap, the Melaka state election on November 20, 2021, saw the UMNO-led Barisan Nasional (BN) – a member of the current ruling coalition - won a two-thirds majority.
Meanwhile, on December 18, 2021, the Sarawak state election could see Gabungan Parti Sarawak (GPS) – another member of the current government pact – defending its rule.
"Wins by the government coalition parties in these state elections can be a catalyst for a GE next year."
Meanwhile, the research firm said the levies imposed on the corporate sector in the 2022 Budget, especially Cukai Makmur, coupled with Omicron, could derail the initially expected strong finish to 2021 for the laggard Bursa Malaysia's benchmark index FBM KLCI.
"The domestic market will need time to "recuperate" from 2022 Budget measures that are resulting in a GDP-divergent year-on-year earnings contraction for the KLCI, it's fourth in five years."
Despite the anticipation of a supportive backdrop per sustained economic recovery, continued albeit moderated fiscal and monetary support, strong commodity prices and relative attraction vs fixed income.
Maybank IB said convincing measures to sustainably broaden fiscal revenue generation would reduce the risk of the corporate sector continuing to be tapped to bridge fiscal gaps.
"Early elections would help clear the decks re delivering optimal policy responses to related challenges," it added.