The Year Ahead: 10 things to look out for in 2022
WITH the various iterations of the Movement Control Order (MCO) imposed this year, many in Malaysia would be inclined to think that 2021 was no different from 2020. Quite early on, any hope of an economic recovery this year quickly dwindled as Covid-19 infections spread fast and furious.
Although the vaccination drive was underway and lockdowns were imposed, the coronavirus still managed to wreak havoc on lives and livelihoods. The infection rate hit a peak on Aug 26, when 24,599 cases were reported on a single day, before trending down as vaccination efforts paid off.
While the economy sputtered as people spent most of their time at home, much was happening on the country’s political scene — from the suspension of parliament to the power tussle between political parties that ultimately ended in the resignation of Tan Sri Muhyiddin Yassin as prime minister on Aug 16.
Muhyiddin was succeeded by Datuk Seri Ismail Sabri Yaakob after Yang di-Pertuan Agong Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah was satisfied that he commanded the confidence of the majority in parliament.
While the Malaysian political scene and rising Covid-19 infections kept many on tenterhooks throughout the year, supply constraints and strong demand led to soaring commodity prices and shortages of goods, from semiconductor chips to pet food and other items.
Geopolitical tensions between the US and China continued brewing with a series of moves that seemed to have worsened relations.
How will all these play out next year? Here are 10 things to look out for in 2022.
1 Evolution of the coronavirus
The threat of new Covid-19 variants that may emerge in the coming year will continue to create uncertainty around the world and threaten the global economic recovery.
The newest variant, Omicron, which was first detected by scientists in South Africa last month is about two to three times more transmissible than the Delta variant, according to research done in the UK. However, early findings suggest that it could be less deadly than Delta.
Nevertheless, governments in Europe have resorted to reimposing travel restrictions, either by closing their borders to, or mandating a 14-day quarantine on, travellers from the UK.
More restrictions could follow as countries work to keep infections under control to avoid the risk of straining their healthcare systems.
A more infectious variant would be bad news for the global economy as it may force governments to keep borders closed.
The best bet now seems to be booster shots for vaccinated individuals as studies show their effectiveness against infections or acute illness caused by the Omicron variant.
Malaysia is stepping up its efforts on booster doses. After a successful vaccination drive this year, where about 78% of the total population was fully vaccinated, the challenge now is to get these vaccinated individuals into clinics and vaccination centres again for another round of shots.
In 2022, will the coronavirus become less virulent and deadly as it spreads, or will it become more dangerous as new variants emerge?
2 Ground continues to shift on local political scene
There is never a dull day in Malaysian politics, with the various parties attempting to find the right balance due to the lack of a strong majority among any coalition that was not seen before 2018.
The political stability memorandum of understanding (MoU) between Perikatan Nasional (PN) and Pakatan Harapan (PH) put to rest the commotion in mid-2021, with none discounting that the dissolution of parliament could happen by the end of the MoU period in July 2022.
Despite the MoU signed by Prime Minister and Umno vice-president Ismail Sabri, factions within Umno is pushing to have the 15th general election (GE15) even earlier, in an attempt to ride on the feel-good factor from its landslide win in the Melaka state election and PH’s worse-than-expected loss in Sarawak.
The party is hopeful of getting the rakyat’s mandate and clinching back its title as the leading political party in the country that it lost in GE14, even as key leaders such as party president Datuk Seri Ahmad Zahid Hamidi and former chief Datuk Seri Najib Razak struggle to shake off corruption charges in court.
Despite the political manoeuvring seen in 2021, Malaysia practically has the same administration as the government in February 2020, except with Umno’s Ismail Sabri as the prime minister — who could potentially be the shortest-serving premier if GE15 is called next year.
The upcoming GE15 will certainly be a wild card as voting behaviour may change with the end of pandemic aid and measures, and as the minimum voting age of 18 comes into effect at a time when youth-led political party Muda secured a High Court ruling to be formally registered by the Registrar of Societies.
For better or worse, political changes in Malaysia come with changes in government policies as well. This was seen in the revocation of the exemption on marine vessel cabotage, as well as changes in infrastructure project models for rail and highways in Peninsular Malaysia and Sabah and Sarawak over the last few years.
A wide range of key projects and policies are still at stake, including the 5G network infrastructure development, transformations at government-linked companies to support economic growth and improve governance, and more importantly, the development of high-growth sectors and diversification of government revenue sources.
3 Economic recovery
After a year when economic recovery fell short of expectations due to the resurgence of Covid-19 infections and subsequent lockdowns, the Ministry of Finance (MoF) is now looking at an economic growth of between 5.5% and 6.5% for the country in 2022.
Is the target too optimistic given how certain countries are now battling with the new and highly transmissible Omicron variant?
Perhaps one of the biggest differences between the 2021 growth projection that fell short and the 2022 projection is that Malaysia has 78% of its total population fully vaccinated to date. Based on the available statistics on Dec 23, the government projects that the country will hit 80% full vaccination status by July 20, 2022.
While the vaccine does not make one invincible against the virus, it would help in decreasing the severity of the infection and keep hospitalisation rates under control. With that, Malaysia could avoid having to impose another round of strict lockdowns, which stalled economic activity in 2020 and 2021.
With the relaxation of movement restrictions in Malaysia since October, coupled with the swift vaccination efforts by the country, sentiment among consumers and businesses seems to be picking up.
However, all eyes will now be on how quickly the relevant ministries can administer the booster shots to individuals who have been fully vaccinated. Recipients of the Sinovac vaccine and those who are 60 years and above have been asked to get their booster doses in order to better protect themselves against the virus.
A poor take-up rate of the booster shots could potentially push the nation back to square one if highly infectious new variants take hold in the community.
Economists estimate that the economy will grow by an average of 5.7% in 2022, in line with MoF’s forecast. It is premised on the sustained economic reopening and ease of mobility within the country and abroad, which would bode well for private consumption.
4 Inflation and interest rates
Inflation has become a worry around the world due to concerns over the effects of persistently high prices on the economy.
In Malaysia, the spike in food prices recently hit the headlines. The causes vary, ranging from bottlenecks in the supply chain and soaring commodity prices to the global energy crunch and labour shortages as a result of the pandemic. Unfavourable weather conditions have also compounded the situation.
Moving into 2022, most believe that the supply constraints will dissipate as economic activity continues to recover, while labour issues and elevated commodity prices will subside as markets adjust.
Such cost-push pressures are likely to be managed through non-monetary measures such as fuel subsidies, price ceilings on essential items and through ongoing efforts to increase food supplies. That means, how the government utilises non-monetary measures to keep prices under control will have a bearing on inflation going forward.
At the same time, economists are expecting demand-pull pressures as the economy recovers and consumer sentiment improves. Monetary measures, like higher interest rates, would help tame a demand-pull inflation.
However, the timing is important. Raising interest rates too fast while the economic recovery is in its early stages, with the risk of the pandemic still present, could be more detrimental than helpful.
The US Federal Reserve is expected to begin increasing interest rates next year, ending the ultra-low interest rate environment that was prolonged by the pandemic. Countries around the world are expected to follow suit, including Malaysia.
Most economists see Bank Negara Malaysia raising interest rates only in 2H2022, by 25 basis points by the end of 2022. Notably, the central bank previously stated that the key to normalisation of monetary policy is a “more entrenched and sustainable economic recovery” amid a narrowing output gap.
In November, headline inflation came in at 3.3%, surpassing the long-term average headline inflation of 1.6%. Full-year inflation is projected to average between 2% and 3% in 2021.
For 2022, economists expect headline inflation to remain moderate, within 2% to 3%, while core inflation is expected to see an uptick but will remain benign.
5 Digital economy
Several developments in the digital segment could steal the headlines in 2022, from Malaysia’s 5G network rollout to the continued rise in popularity of cryptocurrencies.
Many will keep their eyes peeled for the government’s decision on whether to proceed with the single wholesale network (SWN) model for the implementation of 5G, amid the current impasse between the telcos and Digital Nasional Bhd — the government-owned entity tasked with the rollout.
Communications and Multimedia Minister Tan Sri Annuar Musa has said that a paper will be presented to the Cabinet for the government’s decision soon.
Besides that, Bank Negara will be announcing up to five successful applications for the digital bank licences in the first quarter of 2022. A total of 29 parties applied for the licences, ranging from banks and industry conglomerates to technology firms, e-commerce operators, financial technology players, cooperatives and state governments.
Meanwhile, the central bank has been rather quiet on the topic of cryptocurrencies and digital assets, despite the surge in cryptocurrency prices to record highs — Bitcoin reached a peak of more than US$68,000 (RM285,000) while Ethereum touched an all-time high of US$4,800 — amid increasing institutional interest.
Institutions have stepped into the cryptocurrency space in a big way, such as Tesla Inc, which had acquired US$1.5 billion worth of Bitcoin in February, while banks including Goldman Sachs and JP Morgan have enabled clients to access digital assets.
There will likely be more developments in terms of regulations surrounding cryptocurrency as well, seeing as several regulators around the world are calling for stricter rules.
Another topic to look out for in 2022 is the metaverse — also closely linked to cryptocurrencies and digital assets. There has been a surge in interest in metaverse projects such as Decentraland and The Sandbox, given the rise of their respective digital asset tokens, MANA and SAND, to record highs.
Several corporations are looking towards the metaverse, such as Facebook (which has rebranded itself as Meta), as well as brands like Nike and Adidas, so there will likely be more developments in this space.
6 Extreme weather conditions
The torrential downpours, which resulted in parts of the Klang Valley being submerged under a sea of muddy water, should serve as a wake-up call for all Malaysians and businesses. The floods that happened in mid-December was a clear sign of how extreme weather conditions, brought about by climate change, can devastate the urban Klang Valley.
Once, extreme weather conditions were seen to only impact those in the plantations sector, affecting yields of crops, but now, it is clear that businesses would also be upended by such natural disasters, judging by the number of warehouses in the Shah Alam and Klang areas that found inventory and factory machinery damaged by the floods.
In the years to come, experts believe that such floods could happen again due to climate change. Such extreme weather conditions, they say, also threaten clean water supply and food security, alongside other aspects such as public health.
This recent disaster in the Klang Valley is only one example of climate change that will most certainly apply more pressure on Malaysian corporations to adopt environmental, social and governance (ESG) policies.
Furthermore, the 12th Malaysia Plan has laid out a roadmap for changes that should take place to make Malaysia carbon-neutral by 2050. To promote the greening of the economy, measures include reduction of greenhouse gas emissions and a feasibility study on carbon pricing.
There was also the recent establishment of the International Sustainability Standards Board (ISSB) on Nov 3 at the COP26 Summit in Glasgow. The ISSB has been tasked with developing standards that result in a high-quality, comprehensive global baseline of sustainability disclosures focused on the needs of investors and the financial markets.
The ISSB said that it will build its standard on the work of existing investor-focused reporting initiatives such as the Climate Disclosure Standards Board, the Task Force on Climate-related Financial Disclosures, the Value Reporting Foundation’s Integrated Reporting Framework and SASB Standards and the World Economic Forum’s Stakeholder Capitalism Metrics, to become the global standard setter for sustainability disclosures for the financial markets.
Inevitably, businesses around the world will soon be impacted by these standards.
7 Commodity prices
Commodity prices have soared to record levels, with some exceeding levels not seen since the spike in 2011, goaded on by supply constraints while demand recovered.
This year, Brent crude prices have increased 47% from US$51.09 per barrel to US$75.15 per barrel on Dec 10. It hit a 52-week high in October, reaching US$86.70 per barrel.
In the short-term energy outlook released by the US Energy Information Administration (EIA), it notes that crude oil prices fell significantly following the identification of the new Covid-19 Omicron variant, raising the possibility that petroleum demand could decline in the near term.
For 2022, the EIA expects production growth from Opec+, US shale oil and other non-Opec countries to outpace the slowing growth in global oil consumption, especially in the light of renewed concerns about Covid-19 variants. It forecasts Brent prices to average at US$70 per barrel in 2022.
It also projects global consumption of petroleum and liquid fuels to increase by 3.5 million barrels per day in 2022 to average at 100.5 million barrels per day from 96.9 million barrels per day for all of 2021.
Maybank Investment Bank Research has forecast Brent crude prices at US$75 to US$80 per barrel for 2022.
As for crude palm oil (CPO), prices have soared 61.6% this year, from RM2,835 per tonne on Jan 4 to RM4,581 per tonne by Dec 10. The commodity also briefly touched RM5,000 per tonne in October.
The palm oil industry has been affected by several issues during the pandemic that have driven prices higher. The tight supply has been in part caused by the severe labour shortage during the pandemic and the expectation of lower production due to a lack of new planting while demand rebounded.
CGS-CIMB Research said in a Dec 6 report that the consensus view at the 16th Indonesian Palm Oil Conference (IPOC) was that CPO prices are likely to decline from the current spot price of RM5,100 per tonne in 2022.
“This is broadly in line with our CPO price forecasts of RM4,270/RM3,600/RM3,240 for 2021F/2022F/2023F,” said the report.
8 China factor
After two years of the pandemic, China looks set on maintaining its “zero-Covid” policy. Controls in the country are tight, which includes closed schools, mass testing and lockdowns if an outbreak is detected.
Its “zero-Covid” policy means that borders will continue to remain closed for the country and some are concerned that this could hamper global economic growth, given the scale of the country. Others opine that the country will do just fine, on account of its large domestic market that keeps the economic engine running.
China technology companies have been under heavy scrutiny this year by the country’s authorities, from gaming and social media company Tencent to e-commerce giant Alibaba. Notably, the highly profitable after-school tutoring sector saw authorities banning its profits.
In August, the Communist Party issued a five-year blueprint that intends to reshape China’s technology industry. The document said that authorities would “actively” work on legislation in areas that include national security, technology and monopolies. It will also strengthen law enforcement in sectors such as big data and artificial intelligence.
Tech companies in China are being forced to rethink their business models.
Experts opine that this will lead to significant changes in the year ahead. For one, the reforms of the tech industry are set to impact the profitability of the sector. It is also likely to impact how Chinese companies raise capital in the future.
While Beijing has taken steps to contain the damage from the potential contagion effects of the debt woes of property developers Evergrande and Kaisa, the sector will be on the China watchers’ list. Property analysts expect some volatility given the government’s stance on curbing excessive speculation in the sector.
Next year will also be a significant year for the Communist Party of China (CPC) as it will be holding its 20th National Party Congress and marking President Xi Jinping’s first decade in power. The world will be watching this congress closely as it could suggest how much longer Xi intends to stay in office.
9 More competition than collaboration between superpowers
The pandemic did not stop the sabre-rattling by the world’s two largest economies in 2021, with new trade and financial sanctions imposed by the US and countered by China, continuing from the punitive tariffs and technology access restrictions seen in the last few years.
Sectors including finance, technology, manufacturing and energy have been affected even as US and Chinese companies continue to seek access to the other country’s markets.
With both the Democrats and Republicans in the US taking a hardline stance on China, the cold war is expected to roll over into 2022. Already, the US and several allies have announced boycotts of the 2022 Beijing Winter Olympics, with China warning of “consequences” moving forward.
Closer to home, Southeast Asia is the next battle ground as seen from visits by US dignitaries, as the superpower seeks to reposition itself after years of absence during the Trump administration and to contain China’s growing economic and military shows of strength here.
In 2022, pundits believe the situation could remain bumpy, and will be more about competition than collaboration. For Malaysian companies, the bigger concern will be whether future sanctions will hurt or benefit their operations locally or in China, as seen during the Trump administration.
The Peterson Institute for International Economics said in its June 2021 policy brief that “multinational firms operating abroad are increasingly at risk of being caught firmly between US sanctions, including export controls, and Chinese countermeasures”. “These pressures add to growing US-China trade frictions already pushing the restructuring of global supply chains,” the institute said.
However, the continued talks between leaders of the two countries spell hope that things will not spiral out of control, said the Asian Century Institute in December. “The US and China disagree about most things these days. But both have a strong interest in cooperating where they can and avoiding open conflict.”
10 Taking discontent to the polls
Several elections will be taking place in 2022, beginning with Portugal in January and ending with the US midterm elections in December. The elections come at a time when the political environment is more polarised than ever as economic recovery remains uneven.
Fitch Solutions believes that the uneven economic recoveries will lead many governments to focus on short-term measures to boost growth, ultimately slowing down reform momentum. It also believes that a polarised political environment will strengthen anti-establishment sentiment in many markets, thereby boosting support for new or fringe parties.
“In response, we believe governments in countries such as Brazil, Colombia, France and elsewhere will delay reforms and raise expenditure on social welfare in an effort to shore up support. In Hungary, we have already seen authorities implement a fuel price cap to shield household bills from rising inflation,” it said in a report dated Nov 24.
Fitch Solutions believes that the lingering popular discontent following the pandemic, alongside a serious of contentious elections in 2022 and early 2023, will generate continued headwinds to reform momentum across emerging markets in 2022.
“We believe that progress will be particularly slow in Sub-Saharan Africa and Latin America. There will be slightly more progress in Asia, but there is still significant potential for further backsliding on market-friendly measures by Beijing in the run-up to the CPC Congress, as President Xi Jinping looks to secure a third term as general secretary and president,” it notes.
In terms of the US midterm elections, many are expecting the Biden administration to head into a gridlock halfway into Joe Biden’s presidency.
Biden managed to push through a US$1.9 trillion (RM8 trillion) stimulus bill at the start of this year but his “Build Back Better” proposal appears to be on thin ice after West Virginia senator Joe Manchin said he would not support the legislation, implying that the bill does not have enough votes to pass the Senate.
This could slow down the projected economic growth in the US next year.
The Year Ahead: 10 things to look out for in 2022