Thailand
Malaysia: 2021 recovery on the cards
PETALING JAYA: Leading economic indicators in Malaysia have shown that the economy has passed its trough as the country heads towards a modest recovery with 2020 drawing to a close.
Positive distributive trade figures, easing unemployment rates and growing retail sales were suggesting an economic recovery in 2021, alongside the expansionary Budget 2021 which has drawn optimism among economists and analysts as the government seeks to boost consumption and investments.
But as Malaysia went into its first lap of the economic recovery endurance race, it is now back to the flagging off point with the third wave of Covid-19 infections and the reimposed conditional movement control order (MCO).
Socio Economic Research Centre (SERC) executive director Lee Heng Guie said the Malaysian economy is on track for a recovery in 2021 although the pace and strength depended critically on the containment of Covid-19 and the effective implementation of Budget 2021 measures and projects.
He also stressed that the external sector was an important driver to support the recovery.
He cautioned that the occurrence of the third wave of Covid-19 and re-implementation of conditional MCO and enhanced MCO in almost all states were expected to temper the uneven and moderate economic recovery in the fourth quarter and may extend into the first quarter of 2021, depending on the future number of virus cases and the availability of vaccines.
“The most important indicators to track are retail sales and footfall in the shopping malls and retail outlets as well as the number of patrons in restaurants and eating places.
“Our channel checks indicate that footfall in the shopping malls have collapsed to 15%-30% from 80%-90% previously; retail sales dropped by between 60% and 80% in October since the occurrence of a third wave of the virus, ” he told StarBiz.
A quick-take survey by Associated Chinese Chambers of Commerce and Industry of Malaysia indicated a bearish revenue outlook as more than 40% of respondents expected their revenue to drop by more than 20% in the fourth quarter of 2020 and the first quarter of 2021, with almost 48% of businesses operating in Selangor, Kuala Lumpur and Sabah expecting their revenue to decline by between 21% and more than 50%.
Lee said SERC has resisted the temptation of presenting a robust GDP estimate, putting it at 5% in 2021, as it remained wary about the virus development and the strength of recovery in advanced economies and the budget’s capital spending in 2021 amid lingering concerns over domestic political development.
“It is better to have a conservative assumption and be pleasantly surprised on the upside, ” said Lee, who estimated a -2.7% GDP for the third quarter, supported by a moderate recovery in domestic demand and uneven exports.
Even as Malaysia is expected to join its regional counterparts in recording an economic contraction for the third quarter of this year, this is projected to be significantly better than the 17.1% GDP nosedive in the second quarter.
A negative GDP figure that is likely to be announced today would mean that Malaysia has slipped into a recession in 11 years, albeit a technical one, due to a GDP contraction for two consecutive quarters.
If the Bloomberg consensus is anything to go by, then Malaysia is expected to outperform most of its regional counterparts with something of a V-shaped recovery while other countries are only seeing a weaker recovery.
Vietnam’s GDP remained positive at 2.2% while other South-East Asian nations remained in the deep in the red, the best being Indonesia at -3.5%.
Bloomberg’s estimates by 19 economists have forecast a median GDP contraction of 4% for Malaysia.
Bank Islam Malaysia Bhd chief economist Dr Mohd Afzanizam Abdul Rashid was the most optimistic, being the only one with an expansion forecast, of which he projected to be 1.3%.
He said the main premise of the bank’s forecast was the net exports, which was expected to contribute positively to the GDP alongside the recovery in consumer spending.
“The manufacturing sector, especially electrical and electronics (E&E) and rubber gloves, is at the forefront the way we see it.
“And given China’s quick turnaround, it should help our export-oriented industries to record a respectable performance in the near future, ” he told StarBiz, adding that the government’s transfer programmes could also help prop up spending.
Nonetheless, he noted that investments would remain negative albeit at a smaller pace.
Moving forward, Afzanizam said the Purchasing Manager’s Index, stock market and bond yields were some of the indicators to look out for, coupled with government measures such as the status of the CMCO.
He expected the economy to remain fragile in the fourth quarter due to the CMCO, which has been implemented in many states.
The most pessimistic estimate came from Singapore’s DBS Bank Ltd with a negative 8.5% projection.
UOB Bank said in a note recently that real GDP would recover significantly in the third quarter to -2.6% but noted that the resurgence of infections and CMCO in wider parts of the country are likely to weigh on sentiment and the pace of recovery in the fourth quarter.
It expects GDP to rebound by 5.5% in 2021, whereby upside surprises could come from higher government spending amid the large expenditure outlays in Budget 2021 and wider distribution of vaccines that could give a decent lift to GDP from the second quarter onward.
Source: https://www.thestar.com.my/business/business-news/2020/11/13/2021-recovery-on-the-cards