KUALA LUMPUR (July 27): The International Monetary Fund (IMF) has cut its year-on-year economic growth forecast for Malaysia to 5.1% in 2022, from 5.6% previously, according to the fund's latest World Economic Outlook Update published on Tuesday (July 26).
"Risks to the [global economic] outlook are overwhelmingly tilted to the downside," the IMF said, after taking into consideration risks arising from the Russia-Ukraine war, inflation globally, the tight labour market and monetary policies, potential debt distress in emerging markets, the property sector crisis in China and geopolitical fragmentation, which could impede global trade and cooperation.
The IMF’s latest forecast is lower than Bank Negara Malaysia’s projected GDP growth range of 5.3%-6.3% for 2022.
With increasing prices continuing to squeeze living standards worldwide, the IMF said taming inflation should be the first priority for policymakers.
“Tighter monetary policy will inevitably have real economic costs, but a delay will only exacerbate them,” it said.
The IMF opined that targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the Covid-19 pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending.
“Tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools, and making reforms to debt resolution frameworks all the more necessary,” it said.
“Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices,” it added.