In recent years, the global economy is facing uncertainty and significant challenges such as Russia’s invasion of Ukraine, worsening geopolitical tensions between the United States and China and an increasing fallout from climate change.
Accordingly, these issues will disrupt the global supply chain and threaten food security heightening risk, especially in emerging economies reliant on exports and vulnerable to currency fluctuations.
On the other hand, inflation and shortage of foreign labour for critical industries in manufacturing and palm oil become the major concern in Malaysia.
It will cause higher prices and affect production output in 2022 and beyond due to supply issues and the weakening of Ringgit against the US Dollar.
Nevertheless, Malaysia is expected to grow by more than 5.0 % this year due to the recovering domestic economy and booming exports.
In addition, Malaysia is well placed to sustain its growth momentum in the short to intermediate terms since the digital economy has the potential to transform industries and talent as issues afflicting the economy today.
Below are three major factors that affect the economy in 2022 and beyond.
Eastern European War
The Eastern European War brought a significant impact on food production, particularly in Europe. However, the spillover effect may lead to food inflation around the world. It also affects the global supply chain and raises the cost for imports into Malaysia.
Latest Tensions Between The US and China Over Taiwan
Due to the controversy surrounding Taiwan, China may implement negative economic sanctions against Taiwan, which it claims as its territory. These could be considered a supply chain disruption and an economic blockade of an island.
Threat to Global Crops From Climate Change
Due to the COVID-19 pandemic and forgoing its focus on climate change, the effects of increased temperatures, floods, and other natural disasters throughout the world cause threats to food security and cause an increase in food prices.
Based on the recent review of the Malaysian economy in 2022, the IMF stated that: “While there is a surge in growth, external headwinds and global uncertainties pose a challenge and add to the country’s downside risks.”
Meanwhile, the IMF also warned China, that the possibility of COVID-19 resurging, high levels of consumers and business debt, and elevated fiscal risk will cause slower regional growth.
Finance Minister Zafrul Aziz mentioned that this gloomy global sentiment will affect Malaysia’s economic outlook. Hence, he advised that Malaysia needed to prepare for a downturn in the global economy as the recession risks are growing due to monetary tightening in the US and slower development in China.
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