Three economic scenarios for next year

A hawker at the Chow Kit market. Photo by WinYee Chong

By ZAIDI ISHAM ISMAIL
[email protected]

KUALA LUMPUR Dec 31 -  The year 2021 kicked off with much optimism buoyed by the advent of the COVID-19 vaccines.

However, 12 turbulent months have passed and it is crystal clear that the virus is here to stay for a while.

Now that the Omicron is among us, what are Malaysia's economic prospects for next year?

Will Malaysia's economy remain steady, shift gear into slower growth or slide into recession?

A strong rebound is possible

In a joint statement to DagangNews.com,  Professor Geoffrey Williams, Dean of the Institute of Postgraduate Studies at the Malaysia University of Science and Technology and founder of Williams Business Consultancy Professor Geoffrey Williams and ELM Graduate School HELP University lecturer Paolo Casadio said : There are three basic scenarios.


 

''The first scenario is that a strong rebound for the Malaysian economy is possible as the country and the global economy opens up and pent-up consumption is spent and trade flows begin to grow again.

''This is the preferred scenario for the major international agencies like World Bank or the Asian Development Bank as well as Bank Negara Malaysia.

''This would have growth of around 6-7% or so next year.

''We are of the opinion that the forecasts by Bank Negara Malaysia and the World Bank are far too optimistic’’.

Omicron still lurking

The second scenario is that there is a big impact from Omicron which will hold back the opening up of the Malaysian economy and hinder trade flows due to the restraints on international travel.

This could cause a further contraction and recession as in the last two years.

Virus shackled but economic recovery will be slow

The third scenario is that Omicron is not too bad but the recovery is still slow.

Malaysians have less consumption because of job losses and so we would see slower growth of around 3 percent or so next year. This is our central forecast.


 

Which sectors will grow and which will continue to be muted?

Williams and Casadio said the two sectors that will be in the best and worse conditions are the financial ones (best) and construction sector (worse).

The banks in particular can play an important role in supporting credit to SMEs and help them to rebound their businesses quickly.

The central bank can support this in tandem with the banks by giving ample liquidity to the system.

On the other side, the construction sector seems to be in a very delicate situation and it will take some more time over several financial quarters before it can restart.

Some incentives to the sector should be studied by the government to facilitate the sectoral recovery.

Lastly, but very importantly, the services sector will be the most important one to drive the economy through a new growth phase.

This sector has to phase the changes in the behaviour of customers, and an adaptive strategy is needed in order to bring back the customers and swing back to full activity.

The pricing policy can be strategic and as incentives for customers in this still delicate phase of the economy.

What can the government do to stimulate the economy further?

The main issue is not to overreact to Omicron and to allow the economy to open and to heal more.

There should be no need for fiscal or monetary policy changes yet until the situation is clearer. - DagangNews.com