KUALA LUMPUR: HSBC Global Research Economics team today released a s report on HSBC Asian Outlook 2022.

Here are some take outs that focusing on Malaysia.

Malaysian economics outlook

We believe the Malaysian economy has one of the brighter outlooks in the region. We expect GDP growth to rise 3.6% in 2021, before accelerating to 5.6% in 2022.

Malaysia has one of the highest vaccination rates in Asia, allowing a high degree of resilience. While restrictions may be re-imposed, we believe the government will likely opt for highly targeted measures as opposed to lockdowns

Malaysia is currently attracting the highest share of FDI commitments (% of GDP) in ASEAN, overtaking Vietnam.

This bodes well for the future of manufacturing. Malaysia’s manufacturing outlook remains impressively strong.

The lockdowns appear to have created a substantial backlog that we believe will drive Malaysia’s export growth well into 2022.

While export growth may nonetheless slow from 2021, this will likely occur at a far more gradual pace compared to other regional economies.

As the labour market strengthens, core inflation may gradually trend higher, approaching 2% by the end of 2022, thus allowing Bank Negara Malaysia (BNM) to initiate a gradual tightening process in 2H 2022.

We expect a total 100bp of rate hikes over 2022 and 2023.

Fiscal policy is expected to remain expansionary in 2022 with a budget deficit target of 6.0% of GDP, compared to a targeted deficit of 6.5% in 2021.

MYR outlook

USD-MYR is hovering near its year-to-date high due to various external challenges.

There are still a lot of uncertainties, but we believe the undervalued MYR can recover in 2022 as Malaysia’s economy emerges from a “double-dip” recession.

HSBC Economics is optimistic about Malaysia’s consumption prospects and exports outlook.

These sources of growth should support the MYR through the following ways:
1) A wider “core” balance of payments. FDI inflows could rise further, based on previously approved FDI applications.
2) BNM’s policy normalisation (two rate hikes expected) should help the MYR maintain a yield advantage against the USD and keep real rates positive.
3) Greater confidence in the domestic economy and in local assets would help curb residents’ foreign asset accumulation.

Apart from COVID-19 developments, one other risk to our constructive MYR view is that political uncertainty may weigh on sentiment and affect capital flows.