Zafrul Warns Of Risks To Recovery

A slowdown in China’s economy, in part due to its zero Covid-19 policies, and the spillover impact from the Russian-Ukraine war are also adding to the uncertainty.

Zafrul Warns Of Risks To Recovery

Malaysia is on the mend, says Finance Minister Tengku Zafrul Abdul Aziz but he warns of the risks to the recovery amid an uncertain global economic outlook.

Stating that numbers speak for themselves, Malaysia had a strong first quarter this year, with GDP growth of 5%, and is on track to achieve GDP growth of 5.3 to 6.3 percent in 2022.

"Meanwhile, the unemployment rate fell to 3.9% in both May and June 2022, continuing a 14-month decline," he said last night in his opening keynote address to the Malaysian Student Leaders Summit XVI 2022.

Why is what he says important for the business community?

Because he states the return of traffic jams and packed eateries suggest that our second quarter GDP numbers may be strong.

In the red

Though we can dispute a lot about what he says next, that is the data and packed shops or jams will further validate "our policies that have placed Malaysia on the right track towards recovery.”

Nevertheless he warns there are indicators that are still in the red, such as inflationary pressure that is continuing, supply chain disruptions that are ongoing in some parts of the world.

The slowdown in global growth is another factor as it could add to the slowdown in exports from Malaysia given that China's economy is also showing signs of continued stuttering while commodity prices continue to rise.

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“Our inflation rate climbed to a one-year high of 3.4 per cent in June 2022, with food inflation in June at 6.1 per cent,” he says, adding that subsidies has helped to cushion the impact and price caps on certain key goods has also helped.

Zafrul also notes the slowdown in growth globally follows the higher-than-expected inflation worldwide, especially in the United States and major European economies, which have triggered tighter monetary policies.

A slowdown in China’s economy, in part due to its zero Covid-19 policies, and the spillover impact from the Russian-Ukraine war are also adding to the uncertainty.

Recovery

“The International Monetary Fund has already lowered its growth projection for Malaysia to 5.1 per cent from 5.6 per cent, which is below our official projections of 5.3 per cent to 6.3 per cent.

“At this point, we remain optimistic that we will be able to stick to our official projections,” he says.

And the risk of the globe entering into a recession might stagger global recovery further. The U.S. is the main barometer for the rest of the globe to follow in the fight against inflation and this hinges on rates hike.

“The risk of the US entering a recession, technical or not, makes the global outlook even bleaker,” he says, adding that the US Federal Reserve’s cumulative rate hike of 225 basis points in total thus far has weakened numerous currencies, including the ringgit.