FILE PHOTO: International Monetary Fund logo is seen outside the headquarters building
KUALA LUMPUR: The International Monetary Fund (IMF) has revised its year-on-year economic growth forecast for Malaysia to 5.1 per cent in 2022 from 5.6 per cent previously, according to the fund's latest World Economic Outlook Update July 2022 (published on July 26).
However, the IMF’s latest forecast is lower than Bank Negara Malaysia’s projected gross domestic product (GDP) growth range of 5.3 per cent to 6.3 per cent for 2022.
The fund said the risks to the global economic outlook are overwhelmingly tilted to the downside.
"The factors such as the war in Ukraine could lead to a sudden stop of European gas imports from Russia, while inflation could be harder to bring down than anticipated either if labour markets are tighter than expected or inflation expectations unanchor.
"Tighter global financial conditions could induce debt distress in emerging market and developing economies; renewed COVID-19 outbreaks and lockdowns as well as a further escalation of the property sector crisis, might further suppress Chinese growth and geopolitical fragmentation, could impede global trade and cooperation,” it added.
IMF said that with increasing prices continuing to squeeze living standards worldwide, taming inflation should be the first priority for policymakers.
"Tighter monetary policies will inevitably have real economic costs, but the delay will only exacerbate them.
"However, tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary,” it said.
The IMF suggested that targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending.
"Therefore, policies to address specific impacts on energy and food prices should focus on those most affected without distorting price," it said. - Bernama
