HSBC Global Research: GDP growth expected to accelerate 5.6% in 2022.

Here are some take outs that focusing on Malaysia.

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.

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.