Kenanga Research has revised Malaysia’s GDP forecast for 2022 to 5.0-5.5% (2021: 3.1%) from 5.5-6.0%. due to the Russian-Ukraine crisis which is expected to weigh on investment and trade activity, as well as on the manufacturing sector amid global supply and demand disruption.
The stockbroking firm also attributed the downward revision due to the current surge in COVID-19 cases and the impact of severe flash floods in Peninsular Malaysia.
Malaysia has a relatively low trade exposure with Russia and Ukraine but quite significant economic ties with EU countries. A sanction hit Russia, and a prolonged war in Ukraine may have a ripple effect on EU economies, subsequently impacting Malaysia’s trade performance,” Kenanga Research said.
On Malaysia’s inflation rate, the stockbroking firm said that Malaysia’s inflation rate may trend higher around the 3.0-3.5% level if the Russia-Ukraine war goes full scale, resulting in the large military and civilian casualties, with the US and its allies imposing full economic sanction on Russia.
“An escalating war in Ukraine may pause any intention BNM has to tighten the monetary policy sooner-than-anticipated as Kenanga expect BNM to start raising the overnight policy rate in 3Q22 with at least two rate hikes for the year. The USDMYR pair may continue to trade around the 4.17-4.20 level against the safe-haven greenback in the near term as the ringgit is expected to continue to struggle for traction amid mounting geopolitical uncertainty,” it said.
