KUALA LUMPUR: Asian-centric British bank Standard Chartered believes Malaysia's economy can expand faster this year than what it expects earlier.
StanChart revised Malaysia's full-year gross domestic product (GDP) forecast to 7.0 per cent from 6.2 per cent.given the surprisingly solid first quarter (Q1) growth.
This is higher than the forecasts by the likes of the International Monetary Fund, the World Bank and some other foreign banks.
StancChart's lofty GDP estimate also beats most local research houses' projections, which generally range from 5.0 per cent to under 6.5 per cent.
The World Bank had in April lowered Malaysia's GDP full-year growth forecast to 5.5 per cent from 5.8 per cent previously, while the IMF expected a 5.6 per cent expansion.
Singapore banks OCBC, meanwhile, expects Malaysia's full-year GDP growth at 5.7 per cent, an increase from its earlier projection of 5.4 per cent, while UOB felt the local economy was on track for a 5.5 per cent full-year growth.
Malaysia's GDP was back above pre-Covid-19 levels, according to Standard Chartered Bank (Singapore) Ltd Asean and Southeast Asia chief economist Edward Lee and Asia economist Jonathan Koh.
Some local economists, however, think the seven per cent expansion was too optimistic.
"Obviously this is really on the optimistic side. Perhaps such economists have put more weight on the strength of consumer spending. I'm not saying it is impossible, but given the multitude of downside risks, naturally one would be more cautious," Bank Islam Malaysia Bhd chief economist Mohd Afzanizam Abdul Rashid told the New Straits Times.
Afzanizam thinks that based on the latest economic data, Bank Negara's full-year growth projection of between 5.3 per cent and 6.3 per cent was more realistic and within reach.
However, due to the high base effects in 2022, Lee and Koh said the bank had lowered its 2023 forecast to 4.2 per cent from 4.5 per cent.
Elaborating on the country's economic performance from January till March this year, they said: "(Malaysia's) Q1 GDP expanded 5.0 per cent year-on-year (Y-o-Y), taking GDP 3.3 per cent above the pre-Covid (Q4 2019) level on a seasonally adjusted basis. The growth recovery was broad-based.
"By expenditure, all components expanded quarter-on-quarter (Q-o-Q), as of Q1, only investment and trade in services remained below pre-pandemic levels. By industry, 18 of 21 sectors expanded Q-o-Q, and we estimate that 74 per cent of the economy is above pre-Covid levels."
They added that the labour market had continued to recover, with strong employment growth and tighter conditions translating to higher wage growth.
They said the economic and labour-market recovery justified last week's move by Bank Negara Malaysia to begin normalising its monetary policy from emergency settings/
"We expect this process to continue. While inflationary pressure is not substantial (we note that low inflation is due to government measures), the current low policy rate is not seen as commensurate with the economic recovery," they added.
They said Bank Negara might also want to take advantage of robust growth to build policy space, adding that policy guidance suggested that more rate hikes were likely.
As a result, StanChart has maintained its view of 75 basis points (bps) of hikes in 2022.
"We expect two more hikes, in July and September (we drop our Q4 hike expectation given this week's move), taking the overnight policy rate to 2.5 per cent by end-2022. We then expect a pause (see Bank Negara begins normalisation with 25bps hike)," they said.