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PETALING JAYA: There is a “30% to 40%” chance for Malaysia to face a recession next year, and this largely depends on whether the United States – Malaysia’s third-largest export destination – manages to avert an economic meltdown.
The bad news is, there is a “very high possibility” for the United States to suffer a downturn in 2023, according to Socio-Economic Research Centre (SERC) executive director Lee Heng Guie.
Lee said the main uncertainties about a US recession is its timing and severity.
“A recession could also be happening in the European Union, but this depends on how the Russia-Ukraine crisis will play out,” he said during SERC’s quarterly economy tracker briefing yesterday.
For the time being, however, SERC has maintained its 2023 economic growth forecast for Malaysia at 4.1%. It has also not factored in the risk of recession in its forecast.
As for 2022, SERC predicted a growth of 5.2%. After a 5% expansion in the first quarter, Lee expects the Malaysian economy to grow further by 6% to 6.5% in the second quarter of 2022.
The stronger projected growth is on the back of the reopening of the economy and the Hari Raya festive celebration spending effect.,
In addition, a higher growth is also possible thanks to the Employees Provident Fund’s (EPF) fourth withdrawal amounting to at least RM40.1bil, of which 40% of the amount will be for the purpose of supplementing daily or monthly essential expenditure.
However, the economic momentum is likely to decelerate in the second half of the year amid rising inflation, weakening global growth and synchronised global monetary tightening.
Lee said the country’s real gross domestic product (GDP) is likely to grow by 4.5% to 5% in the July-December 2022 period, as compared to 5% to 6.5% in the first half.
He pointed out that Malaysia’s growth in the second half would also be restrained by cautious domestic demand, moderate exports and the dissipating consumer spending stimulus.
On inflation, Lee opined that Malaysia’s headline inflation would increase by 3% to 3.5% in 2022, but highlighted that the country’s inflation remains contained compared to other neighbouring countries.
This is because of the various measures implemented by the government such as subsidies and price ceiling on cooking oil, fuel, chicken and eggs as well as electricity and gas.
Nevertheless, moving forward, Lee cautioned that increasing prices of goods and services are expected to crimp the lower and middle-income households’ spending power, leaving them with reduced disposable income for spending.