The decision by the United States Federal Reserve (US Fed) to raise interest rates poses a potential threat to economic growth in emerging market economies; however, despite these challenges, Malaysia is well-positioned for economic growth and an improving real estate market, according to a new Juwai IQI analysis.
Kashif Ansari, co-founder and group chief executive officer of Juwai IQI, said the firm has been studying the minutes from the US Fed's December meeting since they were released last week.
According to the minutes, the US Fed expects to raise interest rates three times in 2022 and three more times in 2023.
Kashif said many economists believe the first of these rate hikes will occur in March. When the US Fed raises interest rates, there may be repercussions in emerging markets such as Malaysia, he said.
"As inward capital flows decrease, the dollar strengthens and emerging market currencies fall. That's why we've been keeping a close eye on the US Fed," he said.
In terms of how risky the situation is for Malaysia as interest rates rise in the US, Kashif believes the country is relatively well-positioned to withstand the US Fed's actions.
Malaysia's significant current-account surplus, he said, would help insulate the economy from rising US interest rates.
"It is true that Malaysia has significant external debt, which can be risky when the ringgit is weak. However, it was the spending that contributed to the debt that allowed Malaysian families and businesses to survive the worst of the pandemic. As a result of that spending, we are better positioned for an economic recovery," he said.
According to a recent Economist study based on IMF and World Bank data, Malaysia has inflation under control and ranks tenth best in the world on this metric.
"Malaysia also has significant foreign-exchange reserves, which exceed those of all but 14 comparable emerging market economies. The country's overall resilience to interest rate increases places it in the middle of the pack among comparable countries. Its resilience is far greater than that of India, Chile, Turkey, and Brazil," he said.
Kashif believes that international demand for Malaysian exports will continue to rise in 2022 as a result of the United States' rapid economic growth and the rebalancing of supply chains.
"This will help offset any negative impact from rising interest rates," he explained.
Meanwhile, according to a recent Reuters poll of 23 economists, the majority expect Bank Negara to delay its next rate hike until at least June or July.
"Waiting until the second half of the year to raise rates will give it time to take effect. The recovery of the country's economy is also well underway. Malaysia's economic growth is expected to be 5.8 percent this year and five per cent in 2023. Despite the pandemic's impact, economic growth is expected to be 3.5 per cent in 2021," he said.
According to Kashif, rising income and employment in Malaysia have a positive impact on the real estate market.
"That's why our forecast for 2022 predicts increasing transaction flow. Our agents are already seeing an increase in activity. Prices are still stable, but transactions are increasing. Buyers are more willing to purchase real estate than just three months ago. Buyers are more optimistic about the future and their economic prospects," he said.
Kashif expects residential prices to begin rising in certain submarkets as the economy continues to accelerate in the second half of the year and into 2023.
In addition, he anticipates that new projects in desirable locations will open in 2022.