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Malaysia: GDP growth will depend on speed in containing virus spread
PETALING JAYA: The Socio-Economic Research Centre (SERC) forecasts Malaysia’s gross domestic product (GDP) to grow between 4% and 6% this year, with the efficacy of the vaccine rollout and containment of the Covid-19 infection poised to play a critical role in economic recovery.
SERC executive director Lee Heng Guie said how quickly and efficiently Malaysia can contain the virus within the first half of 2021 will be a key determining factor.
“It really depends on how we perform in the first quarter or even the first half of this year. That will be key on whether we can meet our full-year GDP target, ” he said in a virtual briefing titled “Malaysia’s Quarterly Economy Tracker (October to December 2020) and 2021 Outlook.”
Lee said Malaysia’s GDP growth will also be underpinned by an improved domestic economic outlook, clear policy narrative and easing investor concerns about the domestic political situation.
“We recognise that the shape of Malaysia’s economic growth in 2021 is dependent on the development of infection rates and vaccination programme, the effective implementation of Budget 2021’s spending programmes and cash assistance, consumer and business confidence as well as the economic performance of Malaysia’s major trading partners.”
Lee noted that the re-implementation of the movement control order (MCO 2.0) since last month will have an impact on the economy.
“The chances are that we will cope, but at a short-term cost, depending on the duration of the MCO 2.0. The cost will be even larger and a long-lasting impact for not doing good enough to balance health risk prevention and supporting the economy.”
He added that the inter-state travel bans and prolonged lockdown for nearly all states would result in some loss in output and demand.
“It is estimated that two weeks (of lockdown) will reduce GDP growth by 0.5 percentage points. If we assume a one-month lockdown, it will reduce our baseline estimate to 4% from 5% previously in 2021.
“We remain wary of Budget 2021’s implementation capacity risk as well as lingering policy and political risks.”
To hit SERC’s top-end target of 6%, Lee said there needs to be an accelerated containment of the virus spread and vaccination, supported by a more robust rebound in services and the resumption of international travel.
“It is also assumed that the effective implementation of the largest ever fiscal stimulus (total expenditure of RM322.5bil or -5.4% of GDP budget deficit) enhances a faster domestic demand-driven recovery, ” he said.
The government is projecting a GDP growth of between 6.5% and 7.5% for 2021.
On Tuesday, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said Malaysia is still on track to achieve its GDP growth target of between 6.5% and 7.5% for 2021 despite a further extension of the MCO.
He said the impact on the economy during the MCO in March 2020 was around RM2.4bil per day, but under the current one (MCO 2.0), it is about RM700mil per day.
MCO 2.0, which was implemented on Jan 13, has been extended until Feb 18 for all states in Malaysia except Sarawak.
Meanwhile, Lee said an easy monetary policy will remain in 2021, amid an arduous and uneven recovery scenario.
“As headline inflation is expected to increase at a moderate pace trajectory in 2021 and the labour market slack is unlikely to dissipate any time soon, we expect Bank Negara to keep the current appropriate accommodative monetary policy stance for some time.”
SERC estimates Malaysia’s full-year GDP to decline by 5.8% in 2020.
“Exports continued to increase unevenly, marking the fourth consecutive month of growth in December, boosted by increased shipments to our major trading partners.
“Imports have turned positive in December for the first time since March 2020. Exports are expected to grow by 3.3% in 2021, in tandem with a global recovery and firmer commodity prices.”
Lee said industrial output had declined in October and November, dragged by a double-digit contraction of mining output and softer manufacturing activities.
“The heavy-weighted electrical and electronics segment had outperformed since June (ranging 7.1% to 13.2% from June to November), outpacing the average growth of 6% from 2016 to 2019.”
Source: https://www.thestar.com.my/business/business-news/2021/02/05/gdp-growth-will-depend-on-speed-in-containing-virus-spread