Malaysia: BNM remains constructive on the economic outlook – UOB

UOB Group’s Senior Economist Julia Goh and Economist Loke Siew Ting comments on the updated economic outlook from the Bank Negara Malaysia (BNM).

Key Takeaways

“Bank Negara Malaysia (BNM) remains sanguine about the country’s economic outlook despite lingering downside risks. BNM projects real GDP growth of 5.3%-6.3% for 2022 (vs UOB est: 5.5%; 2021: 3.1%), trimming from earlier Ministry of Finance (MOF)’s projection of 5.5%-6.5%. Domestic demand is expected to be the main anchor of growth as the economy continues to normalise with the reopening of borders, full upliftment of restrictions, and higher investments. Key risks include COVID-19, geopolitical conflicts, and cost pressures.”

“Headline inflation is expected at 2.2%-3.2% in 2022 (vs MOF’s previous estimate of 2.1%; UOB est: 3.0%; 2021: 2.5%) while core inflation is projected at 2.0%-3.0% (UOB est: 2.0%; 2021: 0.7%) amid higher cost pressures, stronger demand, and base effects. Higher inflation pressures are contained with spare capacity in the labour market and price control measures. The unemployment rate is projected to ease further to average ~4.0% in 2022 (vs UOB est: 3.9%; 2021: 4.6%).”

“We noted a less neutral to hawkish tilt as BNM highlighted that the “degree of monetary accommodativeness should be consistent with the improving economic recovery” and “potential policy adjustments would be gradual and measured.” We maintain our view for the OPR to be raised twice this year (+25bps in 2Q22 and +25bps in 3Q22), bringing it to 2.25% by end-2022. The next monetary policy decision is on 11 May and Malaysia’s 1Q22 GDP will be released on 13 May.”