THE latest wave of Covid-19 infections in Malaysia threatens the momentum of the country’s recovery, as reintroduced restrictions hamper growth in key economic regions, said economists this week.

Malaysia’s fourth quarter gross domestic product (GDP) performance hinges upon the virus fight, said OCBC economist Wellian Wiranto. The government has announced a return to a conditional Movement Control Order, restricting movement in Kuala Lumpur, Selangor, and Sabah — areas which “comprise a lion’s share of Malaysia’s GDP”, he noted.

The silver lining is that the conditional restrictions still allow broad economic activities, including factory production and retail operations. “Still, whatever the official guidelines may be, Malaysians may shy away from crowds on contagion fear once again anyway, hitting consumer spending,” he added.

Coming at a time when the moratorium on loans has expired, meaning that households need to resume servicing of mortgages and car loans, this will add pressure to the Q4 recovery, he said.

“Hence, the next two weeks will be especially critical. There remains hope that the more stringent measures can flatten the pandemic curve for Malaysia once again.” This would allow growth momentum to remain on a broad uptrend, he said.

Citi economists Kit Wei Zheng and Ang Kai Wei see the recovery momentum slowing, with the manufacturing Purchasing Manager’s Index and mobility indices suggesting that hard data could plateau in September.

While they still expect third quarter GDP to rebound by 97 per cent, at a quarter-on-quarter seasonally-adjusted annual rate, this largely reflects a technical rebound from Q2’s depressed level, they added.

Amidst uncertainties over the public health response to the third wave of infection, downside risks to GDP have likely risen, potentially bringing it GDP closer to the lower end of the official forecast range of -5.5 per cent to -3.5 per cent.

UOB economists Julia Goh and Loke Siew Ting expect the reintroduced MCO to put a strain on labour market recovery as well, given that the affected areas contribute 46 per cent of the country’s GDP and about 40 per cent of total employment.

They noted that the recovery was already slowing in August — as seen in figures for employment, manufacturing, and exports — following the steep improvements from May through July, in the initial restart and recovery phase.

In addition to labour market initiatives such as the extended wage subsidy programme, the UOB economists are looking towards the upcoming Budget 2021, to be tabled on Nov 6, which may include extensions to current measures as well as new moves to support consumption, stimulate investments, accelerate digitalisation, improve job creation and wages, and promote environmental sustainability.