Weaker private consumption may affect GDP growth, says centre

 

The Socio-Economic Research Centre says while private consumption will recover, there will be some ‘headwinds’ to contend with.

PETALING JAYA: GDP growth this year will be slightly lower than the government’s forecast of 5.5% to 6.5% because of weaker private consumption, a research centre said.

The Socio-Economic Research Centre (SERC) said it is predicting a 5.2% growth instead.

SERC executive director Lee Heng Guie said although the centre expects Malaysia’s private consumption to recover, there will be some “headwinds” to contend with.

“This is mainly inflation risk and the high cost of living. I expect consumer households to rebuild their savings and fix their balance sheet as a precautionary and contingency step after being hit by the pandemic.

“This explains why our forecast of private consumption is lower than the government’s and hence this will impact the overall GDP growth,” he said during an online media briefing titled “Quarterly Economy Tracker October-December 2021 and 2022 Outlook: Managing ‘Pandexit’ Recovery”.

SERC’s forecast of private consumption for this year is 5.9% compared with the finance ministry’s forecast of 7.3%.

Lee Heng Guie.

Lee said the government’s forecast on the GDP growth was done during the 2022 Budget announcement last October.

“Since then, there have been some developments, especially an unexpected pickup of inflation risks, which is something we have to watch out for.

“There were also the largely unexpected floods that could hamper some of the activity early this year,” he said.

Earlier, presenting the 2022 outlook, Lee said the Malaysian economy has come out of its trough in the third quarter of 2021 and is on the path to recovery in 2022, supported by the reopening of economic and social sectors.

“The worst floods in decades in some states have hampered the recovery in late December and early 2022. However, we estimate real GDP to grow by 5.2% in 2022, an improvement from an estimated 3.4% in 2021,” he said.

He said while private consumption is expected to be “very cautious” for the year, public investment will be the main catalyst for economic growth.

He said the recovery is expected to be driven by a sustained revival in consumer spending, aided by a stronger labour market and increased public investment on the back of a large development expenditure allocation of RM75.6 billion.

“However, the rising cost of building materials and weak public implementation capacity as well as the shortage of workers could delay the implementation of projects, resulting in slow disbursement of funds,” he said.

Lee also said China’s economic slowdown, because of real estate woes and the fallout from sporadic Covid-19 lockdowns, could put a dent on Malaysia’s economic growth as China is Malaysia’s largest trading partner.

“A 1% decline in China’s GDP could shave Malaysia’s growth by 0.3% to 0.5% points,” he said. - FMT