“The global economy is expected to grow at 1.25% to 1.5% with many advanced nations witnessing zero or slow growth due to economic fear and despondency among the people,” said Juwai IQI global chief economist Shan Saeed
PETALING JAYA: The potential deferment of some major investments and spending decisions by both the government and corporations following the dissolution of Parliament to pave way for the 15th General Election (GE15) will not significantly impact the country’s economic growth trajectory this year, say economists.
However, they expect the outcome of the GE15 to change the economic growth forecasts for 2023 and beyond due to downside risk factors.
When contacted by StarBiz, most economists have pegged the domestic economy to grow at 4% to 5% versus 6.5% to 7% this year.
According to Sunway University professor of economics Yeah Kim Leng, while the dissolution of Parliament would cause some public and private investment projects to be kept on hold, it is not expected to have a material impact on the growth trajectory for 2022.
“Our expectation for 2023 growth has been downgraded recently to around 4% due to the sharper-than-expected deterioration in the external environment.
“The key negative external factors include the outbreak of the Russia-Ukraine war, high world food and energy inflation and the rapid cooling of the global economy due to tighter monetary and financial conditions.”
On the domestic front, Yeah pointed out the political uncertainty over the impending general election would likely cause some businesses and households to put on hold major investment and spending decisions.
“There will be some offsetting effects due to the over RM1bil spending boost in conducting the nation-wide election.
“Should the election outcome manifest in a strong, stable and high-spending government, there could be a boost to gross domestic product (GDP) growth in 2023,” Yeah noted.
He also said the ability to sustain GDP growth beyond 2023 at or above the current potential level of 4% to 5% per annum, would depend on the government’s ability to implement structural reforms to overcome various growth constraints and fiscal challenges.
AmBank Research Group chief economist Anthony Dass said “until uncertainty from the GE15 is addressed, the overall scenario remains challenging.
“This would mean more downside risks in the fourth quarter (4Q22) and could continue into the first quarter of next year (1Q23).
Dass, who is also a member of the Economic Action Council Secretariat, said: “We have recently revised our 2022 GDP outlook upwards from 6.8% to between 7.5% and 8.5%. “Following a strong 2Q22 GDP at 8.9% from 5% in 1Q22, we now expect the 3Q22 GDP to be between 9.5% and 10.5%.”
According to him. the economy will continue to be supported by domestic activities spearheaded by private expenditure, public spending, foreign direct investments (FDIs) approved and implemented, trade, domestic direct investments (DDIs), firm commodity prices, and green investments.
Heading into 2023, Dass said the downside risk to the economic growth would come in the form of growing global recession risk due to the aggressive rate hikes to counter high inflation, and ongoing Russia-Ukraine war.
Other challenges, which could impact economic growth next year include the rising cost of living, higher business operating cost due to the weak ringgit, rising borrowing cost, lack of foreign workers leading to a significant loss of opportunity revenue, rising bankruptcies plus non-performing loans and domestic political noises.
Overall, with the upcoming GE15, there is no guarantee that the situation would improve from the economic, business, and governance perspectives.
As such, investors, rating agencies and businesses would be closely monitoring the scenario, added Dass.
Meanwhile, Juwai IQI global chief economist Shan Saeed has a bullish stance on Malaysia’s economic outlook.
Despite the dissolution of Parliament, he maintained the revised GDP forecast for 2022 at 6.5% to 7%.
This is due to the strong domestic demand, healthy investment inflows, tourist arrivals and growth in trade.
“The investment climate in the country is still very conducive.
“For 2023, we expect a GDP between 4% and 5% in the wake of the global growing economic fragilities and geopolitical risk going deeper into the financial markets. Inflation, deep recession, energy crisis risk and liquidity risk will make an impact on the global economy next year.
“The global economy is expected to grow at 1.25% to 1.5% with many advanced nations witnessing zero or slow growth due to economic fear and despondency among the people,” he pointed out.
Bank Islam (M) Bhd chief economist Firdaos Rosli has forecast the GDP growth for this year to be at 6.5% amid a low-base effect.
For 2023, he said the GDP growth would be at 4.5%.
Additionally, he said Malaysia would not experience a hung Parliament come GE15, noting that the outcome would be somewhat similar to GE14, which saw no “one-party” dominanance, but a multi-party system.
“We, however, think Malaysia is at risk of lower investor confidence should state legislative assemblies prefer to serve the remaining seven months of the present political mandate.
“The 12th Malaysia Plan period requires the government to undertake reforms, thus a perpetual political campaigning mode may derail the process.
“In context, Malaysia grew the fastest when political and economic planning cycles are aligned.
“Despite the political noise, our forecasts stand on the pretext of GDP targeting policies of the incumbent,” explained Firdaos.
On how the economy would shape up post GE15, economist Carmelo Ferlito, who is CEO of the Centre for Market Education, said it depend on how the future government would surf the economic tensions created by the international scenario and inflation created by the previous governments.
The political economic agenda of the next government would influence the direction of the local economy in 2023, he said.
On another note, Ferlito said: “While I believe that a majority government is to be preferred for reasons of political stability and policy continuity, I will say that the biggest difference will be made not by the numbers, but by the agenda and commitment to that agenda.
“A strong government with a bad economic agenda would be a disaster. Hopefully, snap elections will force the different parties to ‘reveal their cards’ on the economic vision they want to embrace,” he noted.
OCBC economist Wellian Wiranto said the market appeared to have taken the baseline view that it could potentially help to resolve some of the political uncertainty.
If the elections delivered a clear-cut result, without a protracted timeline for the formation of government, it would be seen as a net plus from the market perspective, he added.
“This would bring about a clearer policy setup that would give foreign investors more confidence in ramping up investment into the country.
“It might not move the needle materially for the GDP forecast in the near-term, however, but will help anchor the macroeconomic stability,” he said.
On the likely economic policies by the winning government post-GE15, Juwai’s Shan opined that it would continue to pursue monetary and fiscal policies to spur economic growth.
“The government has to focus on a two-pronged strategy of making the economy stronger on the domestic front and leveraging on internal strength to maintain trade for businesses, externally,” he said.
There would not be significant changes in the economic strategy and a “mini” budget is not expected to be tabled for the next fiscal year.
“However, amendments could be expected on the budget, which was tabled on Oct 7 prior the dissolution of Parliament,” he added.
