PETALING JAYA: The World Bank has lowered its 2023 growth target for Malaysia to 4.2% from 4.5% earlier and warned that significant headwinds will continue to persist.
World Bank lead economist for Malaysia Apurva Sanghi said as an open economy, Malaysia faces the brunt of global supply disruptions.
“But if you zoom out, the disruptions are not as bad as compared to, for example, the West,” he said at an online briefing session held in conjunction with the release of the World Bank’s East Asia and Pacific Economic update report.
The Asian region in general has suffered from fewer disruptions and Malaysia’s status as a commodity, semiconductor as well as electrical and electronic products producer and exporter, has held it in good stead.
“Having said that, there will be significant headwinds and downsides in 2023 and beyond,” he said.
Apurva said on the global front, overall stagflation and recessionary pressures as well as the ongoing Russia-Ukraine tensions will have an adverse effect on Malaysia’s demand for exports.
On the regional front, the slowdown in China due to its continuing zero-Covid policy, which is hampering its growth, will also impact Malaysia.
“China is Malaysia’s largest direct trading partner, so anything that happens in China will affect the economy here,” he said.
On the domestic front, there are the issues of rising inflation, particularly food inflation, and a sluggish labour market where there is a shortage of workers.
“One thing I haven’t spoken of about the domestic front is the shrinking fiscal space, the persistently declining revenues for almost 10 years; these are issues that need to be tackled on the domestic front,” Apurva added.
The World Bank yesterday also announced it had upgraded its forecast for Malaysia’s economic growth for this year to 6.4% from an earlier 5.5%.
The higher figure is premised largely on the fact that the local economy had performed above expectations in the first half of this year, driven by a high second-quarter growth.
Positive momentum is expected to spill over into the second half of this year with growth for the remaining of the year boosted by a low-base effect.
On the ringgit, Apurva said the bulk of Malaysia’s trade is denominated in US dollars.
He said while 83% of Malaysia’s exports and 80% of its imports are invoiced in US dollars, a “measly” 5.4% (exports) and 4.5% (imports) are denominated in ringgit.
“It does speak of the power of the US dollar, so a deprecating ringgit against the US dollar is a concern,” Apurva said.
“What can be done? Bank Negara is doing what it can but basically the strength of the currency will depend on how well the economy will perform and how well Malaysia can keep its focus on its fundamentals and structural reforms. There’s no quick and easy fix.”
Notably, the ringgit and other regional currencies have been seeing huge falls against the greenback as the US Federal Reserve continues to aggressively raise interest rates, causing investors looking for higher returns to shift their monies from this part of the world to the United States.
The ringgit has fallen to its lowest in more than 20 years against the US dollar, trading at around RM4.60 against US$1, at last look.