BNM: Malaysia not facing stagflation; growth to accelerate in 2022

KUALA LUMPUR (Nov 12): Bank Negara Malaysia (BNM) said Malaysia is not facing stagflation, with the central bank pointing out that economic growth is expected to accelerate in 2022.

Stagflation is described as low economic growth during a time of high inflation, which could lead to an increase in unemployment.

"I know that a lot of people are saying that Malaysia may be facing stagflation. Let me emphasise that we are not facing any stagflation. Growth will accelerate to between 5.5% and 6.5% next year," said BNM governor Datuk Nor Shamsiah Mohd Yunus during the central bank's third quarter gross domestic product announcement.

She added that there is no indication of a broad-based price increase or excessive wage pressure, and that price pressure is expected to remain moderate in 2022 amid the spare capacity in the economy.

Even though some businesses may choose to adjust their prices and offer more competitive wages to attract workers as people start spending again, she said there is still room for improvement in both growth and employment before demand-driven price pressure becomes a cause for concern.

"But having said that, there are many moving parts, both domestically and abroad that can affect our inflation outlook. These include the global commodity price developments and risk from prolonged supply-related disruption.

"We will continue to keep a close eye on this. The stance of monetary policy will continue to be determined by incoming information and their implications to the overall outlook on inflation and domestic growth," said Nor Shamsiah.

Malaysia's economy contracted by 4.5% year-on-year in the third quarter of 2021 amid the imposition of the Covid-19 containment measures in July, under Phase 1 of the National Recovery Plan. Quarter-on-quarter, the economy contracted 3.6%.

Headline inflation averaged at 2.3% year-to-date, and is projected to average between 2% and 3% for 2021, while underlying inflation is expected to average below 1% for the year.

While core inflation is expected to edge upwards in 2022, the governor said it will remain benign amid the continued spare capacity in the economy and slack in the labour market.

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