Malaysia’s economy is expected to gain further momentum as Malaysia gradually transitions towards the endemic stage amid the removal of movement restrictions, relaxation of SOPs and reopening of international borders but analysts are cautiously optimistic the country’s outlook due to heightened external pressure brought by Russia’s invasion of Ukraine. — Bernama photo
KUCHING: A prolonged Russia-Ukraine crisis coupled with the current Omicron infection wave may undermine domestic growth recovery, but the impact would likely be mild largely due to support from higher commodity prices, improvement in labour market condition and a steady domestic demand recovery, analysts note.
According to the research arm of Kenanga Investment Bank Bhd (Kenanga Research), the domestic economy is expected to gain further momentum as Malaysia gradually transitions towards the endemic stage amid the removal of movement restrictions, relaxation of standard operating procedures (SOPs) and reopening of international borders.
“Nonetheless, we retain our cautiously optimistic outlook due to heightened external pressure brought by Russia’s invasion of Ukraine,” Kenanga Research said.
“The crisis is expected to weigh on investment and global trade activity via demand and supply chain disruption.
“Though Malaysia’s economic exposure and trade linkages with Russia and Ukraine are minimal to say the least, the indirect and second round effects could still weigh on the economic recovery momentum.”
Kenanga Research gathered that in 2021, Malaysia exported RM3.9 billion worth of goods to Russia, while another RM0.7 billion to Ukraine.
“The export combined stood at RM4.6 billion or 0.4 per cent of total exports and has been relatively low for many years.
“Meanwhile, Malaysia imported RM4.9 billion from Russia and RM0.7 billion from Ukraine. This makes up RM5.7 billion or 0.6 per cent share of Malaysia’s total imports.
“Overall, the combined trade deficit with Russia and Ukraine in 2021 stood at RM1.1 billion, an increase of 65.8 per cent from the previous year.”
However, the research arm observed that Malaysia’s trade activity with European Union (EU) countries could be a major concern given the size of imports and exports.
“In 2021, Malaysia exported RM103.6 billion worth of goods to the EU while imported RM76.6 billion, which resulted a trade surplus of RM27 billion.
“A major shock to trade activity due to sanctions on Russia could have a ripple effect on EU trade activity. This could adversely affect Malaysia’s trade performance going forward.
“However, given the diversification of export products, supported by higher commodity prices, Malaysia’s trade performance is expected to remain resilient.”
At this juncture, Kenanga Research still believed any adverse economic impact arising from Russia-Ukraine war would still be manageable and relatively moderate on domestic growth.
Hence, the research arm revised its 2022 gross domestic product (GDP) growth projection to five per cent to 5.5 per cent from 5.5 per cent to six per cent to reflect the adverse effect of the rising external risk and uncertainty.
“The growth revision also takes into account the impact of flash floods that have hit several Peninsular Malaysia states since December and the recent surge of Covid-19 infection via its Omicron variant.
“Nevertheless, growth will be supported by the continued robust recovery of the services sector driven by a wider vaccination rate, booster population, reopening of borders, and expansion in the mining and agriculture sector amid higher commodity prices.”