KUALA LUMPUR (May 19): Malaysia is well supported for a sure economic path and its economy is expected to expand 6.5% year-on-year (y-o-y) in 2022 and 5% in 2023, according to Sumitomo Mitsui Banking Corp (SMBC) economist Ryota Abe.

During the SMBC's 2022 Global Economic Outlook Webinar on Thursday (May 19), Abe said that eased restrictions on domestic activities as well as trade improvements contributed to the Malaysian economy's return to pre-pandemic levels in the first quarter of 2022, and are expected to continue accelerating its recovery.

"This was thanks to the very strong external demand, recovery in the domestic sector, labour market and consumer spending, and will continue to accelerate the economic recovery in Malaysia.

"We expect the Malaysian economy to expand by 6.5% y-o-y in 2022 and 5% in 2023… so that is why in the coming two years we expect a higher growth rate in Malaysia," he said.

Notably, Abe's forecast of the economic growth is higher than the range Bank Negara Malaysia has projected for the economy. The central bank in March announced its official economic growth forecast for 2022 to come between 5.3% and 6.3%.

He noted that a primary driver of Malaysia's economy continues to be external demand, as he highlighted that the nation's trade surplus has been on an upward trend, which is expected to continue on the back of higher commodity prices.

Additionally, Abe also noted that Malaysia's terms of trade (ToT) — the ratio of export price over import price — has improved and will also be a main driver of the country's economic recovery in the coming quarters.

"The ToT are improving significantly, this means the export price increased much more than the import price. So that is why Malaysia's economy as a whole can grow on its exports, so this will be the main driver towards Malaysia's economic recovery in coming quarters," he added.

Meanwhile, Abe said that Malaysia's domestic demand is on the path to recovery shown by a month-on-month increase in domestic credit-card spending, which suggests that consumption has gained momentum.

"In addition to that, the labour market in Malaysia still has some spare capacity and the country is opening up borders, coupled with very strong external demand, will help the labour market improve faster to pre-pandemic level."

Abe also said that Malaysia's domestic industry production level bounced back to pre-pandemic levels at the beginning of 2022, carried by the electronic devices manufacturing sector.

"A huge amount of the growth is explained by the manufacturing sector, in particular electronic devices, having contributed to the higher production in Malaysia.

"So far the demand for electronic goods globally will remain high or [climb] higher, so that is why the industrial production in Malaysia will remain strong, far stronger than in 2021. This is why this will be another good driver for the economic recovery in Malaysia," he said.

Thus far, he noted that Malaysia's economic recovery has come stronger than expected, and is expected to continue its recovery momentum going forward.