KUALA LUMPUR: Malaysia's economy can recover at a faster pace with the reopening of its borders despite Omicron uncertainties and external headwinds, economists said.
The impact of the reopening could be significant on the local tourism sector, whose receipts accounted for nearly six per cent of Malaysia's gross domestic product (GDP) pre-Covid-19, they added.
Citi expects the Malaysian economy to grow 6.5 per cent this year as the US bank is optimistic about the imminent reopening of the country's borders to international travellers with quarantine.
Although dampened by floods in the Klang Valley in mid December, Citi said Malaysia's fourth quarter (Q4) 2021 GDP rose a stronger than expected 3.6 per cent year-on-year (Y-o-Y), which should continue into 2022.
Citi economist Wei Zheng Kit said while Omicron had delayed reopening momentum, it did not derail it, both domestically and internationally.
"Despite the recent surge in daily infections since the start of 2022, the proportion of severe cases have declined drastically, with ICU capacity utilisation rates still low," he said.
This partly reflects high and rising vaccination coverage, with 78.7 per cent of the population received two doses and 41.2 per cent received booster shots as of Feb 15.
"Reopening has thus continued, with officials declaring Malaysia on course for a transition to the endemic phase, and a full reopening of the borders without quarantine also on the cards," Wei added.
Citi said tourism receipts accounted for 5.8 per cent of Malaysia's GDP pre-pandemic.
Currently, countries accounting for 57 per cent of 2019 arrivals have reciprocal no quarantine arrangements with Malaysia, led by Singapore (39 per cent).
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid said Malaysia could possibly expand faster economically.
"We know that tourism sector has a direct and close link with other industries. In 2019 for instance, foreign tourists expenditure was mostly for shopping, accommodation, food and beverages and local transport with each items accounted for 34 per cent, 24 per cent, 13 per cent and 8.0 per cent from total foreign tourisrs spending during that year.
"So we should see a livelier economic activites and it will spread around across various industries. However, we are still sticking to the 5.5 per cent target."
Afzanizam said Bank Islam was still wary on the downside risks.
"The latest event unfolding in the eastern Europe and its implication on commodity prices and inflation may have some bearing to recovery trajectory. But all in all, the GDP growth for 2022 should be better than 2021," he added.
Juwai IQI global chief economist Shan Saeed agrees that the Malaysian economy would benefit from the reopening, although he still sticks to his original forecast of between four and five per cent growth this year.
This would be supported by higher oil prices, increase in trade and commerce, fully vaccinated population and "above all, more FDIs (foreign direct investments) as the country attains macroeconomic stability which is vital for the ringgit", he added.