PETALING JAYA: The US Federal Reserve’s (Fed) impending move to lift interest rates poses a potential threat to economic growth in emerging market economies, but new analysis released by Juwai IQI suggests that despite these challenges, Malaysia is well positioned for economic growth and an improving real estate market.
Juwai IQI co-founder and group CEO Kashif Ansari (pix) said when the Fed raises interest rates, there can be fallout in emerging markets like Malaysia. The dollar strengthens, and emerging market currencies tend to fall as inward capital flows decrease.
“The (Fed) minutes show that the Fed expects to raise interest rates three times in 2022 and three more times in 2023. Many economists believe the first of these rate increases is likely to come in March,“ he said in a statement today.
The consensus for Malaysia’s economic growth is 5.8% this year and 5.0% in 2023. Economic growth in 2021 is estimated at 3.5%, despite the impact of the Covid-19 pandemic.
Kashif said that when income and employment climb in Malaysia, there is generally a positive impact on the real estate market.
“That’s why our forecast for 2022 predicts increasing transaction flow.
“Our agents are already seeing an increase in activity. Prices are still stable, but transactions are increasing. Buyers are more willing to purchase real estate than just three months ago. Buyers are more optimistic about the future and about their own economic prospects.
“As the economic acceleration continues into the second half of the year and into 2023, we also expect residential prices to begin climbing in certain submarkets.
“Real estate developers are taking all these considerations into account. We expect new projects to come online in desirable locations in 2022. Other projects will be commenced for later delivery.”
With interest rates climbing in the US, how risky is the situation for Malaysia?
Kasif said: “We think the country is relatively well placed to endure the Fed’s actions. Malaysia’s significant current-account surplus will help insulate the economy from rising rates in the US. Malaysia has earned more from its exports than it has paid for imports since 1997 and has maintained this surplus during the pandemic.
“It is true that Malaysia does have significant external debt, which can be risky at a time when the ringgit is falling. However, the spending that helped contribute to that debt is what helped Malaysian families and companies survive the worst of the pandemic. Because of that spending, we are better placed for an economic rebound.”
He said Malaysia also has inflation under control and ranks 10th best in performance on this measure, according to a recent study conducted by The Economist that uses data from the International Monetary Fund and the World Bank. What’s more, Malaysia has significant foreign exchange reserves, better than all but 14 other comparable emerging market economies.
Malaysia’s overall resilience to interest rate increases puts it at about the middle of the pack among similar countries. Its resilience is much higher than such countries as India, Chile, Turkey, and Brazil.
“We believe international demand for Malaysian exports will continue to increase in 2022 due to fast economic growth in the US and the rebalancing of supply chains. This will help offset any negative impact from rising rates,” Kasif said.
He noted that Bank Negara Malaysia has a direct impact on the economy. A recent poll of 23 economists by Reuters found that most expect Bank Negara to postpone its next rate rise until at least June or July. The country’s economic recovery is already under way. Waiting until the second half to increase rates will give it time to take hold.
