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Malaysia: Technical recession likely, but economy set to rebound in 2021
PETALING JAYA: Malaysia is expected to see another dip in economic growth in the third quarter, with a technical recession likely to extend to the final three months of the year due to the ongoing conditional movement control order (CMCO).
According to CGS-CIMB Research, the country’s gross domestic product (GDP) is projected to decline 3.5% in the three months to September. This followed a 17.1% lockdown-inflicted contraction in the second quarter, thus confirming a technical recession, which is defined by two consecutive quarters of negative growth.
The third-quarter GDP is due tomorrow.
The research house said it would likely contract 1% in the fourth quarter due to the successive extensions in the CMCO.This would result in a lower full-year GDP forecast of a 5% contraction, compared with its earlier forecast of a 4.4% decline for 2020.
The economy was expected to see rebound next year, CGS-CIMB Research said.
“We maintain our expectations of a 7.5% GDP rebound in 2021, driven by supportive fiscal and monetary policy as well as an assumption of normalising economic activities and easing social distancing requirements by mid-2021, which has been bolstered by recent progress on a vaccine breakthrough, ” it explained.
On its third-quarter forecast, CGS-CIMB Research said recent data suggested that the GDP likely declined.
The industrial production index rose 1% year-on-year (y-o-y) in September, compared with a growth of 0.3% y-o-y in August, as manufacturing built on recent gains, led by export-driven rubber products and electrical and electronics, as well as the lift in autos from sales tax exemption-driven demand.
The mining and electricity sub-indices, however, continued to fall 9.6% y-o-y and 2.1% y-o-y, respectively.
Entering the fourth quarter, CGS-CIMB Research said, services remains a weak spot with the looming CMCO effect.
“Unlike manufacturing, the services index continued to contract in the last quarter, albeit at a slower pace as precautionary social distancing and border closures impacted the hotel, transport, food and beverage, real estate and arts, entertainment and recreation sectors, ” the brokerage said.
“Bright spots were auto sales and finance, which recorded growth, while the contraction in retail and wholesale trade narrowed sharply, ” it added.
The drag in the construction sector moderated to -13.1% y-o-y in the third quarter (-44.9% y-o-y in the second quarter) amid a partial restart in projects under strict standard operating procedures, it noted.
“A weaker sequential recovery at the year-end may suppress improvements in labour market conditions; after the unemployment rate had fallen from a peak of 5.3% in May to 4.6% in September, ” CGS-CIMB Research pointed out.
Source: https://www.thestar.com.my/business/business-news/2020/11/12/technical-recession-likely-but-economy-set-to-rebound-in-2021