Socio-Economic Research Centre (SERC) executive director Lee Heng Guie said cautious domestic demand, moderate exports as well as rising inflation and cost of living will restrain growth.
“The country will also see dissipating consumer spending stimulus, due to the resumption of the normal rate for Employees’ Provident Fund (EPF) contributions, end of the passenger car sales tax exemption and higher loan repayment,” he said at SERC’s quarterly economy tracker virtual briefing.
It estimated that gross domestic product (GDP) growth came in at 5% to 6.5% in the second quarter of this year but will likely moderate to 4.5% to 5% in the second half.
Lee said Malaysia’s growth will be driven by the continued demand for exports and high commodity prices.
He said increased spending on electrical and electronics products and growing consumer confidence, triggered by pent-up demand, would continue to support economic growth.
“I think consumer spending will be strong but it will likely taper off next year when stimuli such as lower EPF contribution and exemption of sales and service tax (SST) for cars are discontinued,” he said.
Lee warned that going into the second half of 2022 (2H 2022) and 2023, there is already a growing danger of global stagflation and the US economy could slip into recession.
A total of 15.1% of Malaysia’s exports go to China, followed by 11.5% to the US and 9.1% to the EU.
Lee expects the Malaysian economy to come in at 4.1% next year as the global economy slows down to an estimated 2.5% from 3% to 3.5% estimated for this year.
He said there is already a very high possibility of a recession in the US as it deals with runaway inflation.
“For the EU, (the risk) is its close proximity to the Ukraine/Russia conflict and whether or not it turns off the gas pipeline to Europe,” he said.
“We also expect growth in China, Malaysia’s largest trading partner, to pick up pace next year but that will also depend on how they (China) manage their zero-Covid approach,” he said.
“Given these concerns, I place the risk of recession for next year at 30% to 40% compared to a very low risk now,” he added.
In the second quarter of this year, Malaysia’s GDP grew at an estimated 5% to 6.5% while in the second half it is expected to moderate to 4.5% to 5%. On the other hand, inflation for the year is expected to come in at 3% to 3.5%
On the subject of the deficit target, Lee stated there is a risk the government might overshoot the 6% target, as the revenue collected from Petronas’ dividend will be partially offset by the huge subsidy.
“I believe the government will ask for more dividends from Petronas to offset the huge fuel subsidy which is estimated at RM37.3 billion for this year,” he added.