Economy to continue recovering on domestic demand

However, Malaysia’s exports continued to be in positive territory in November at 4.3% y-o-y, higher than the tepid growth of 0.2% y-o-y observed in the preceding month.(File pic - Northport Klang)

PETALING JAYA: Despite the negative effects of the targeted conditional movement control order (MCO) in the fourth quarter of 2020, the economy is expected to continue recovering on the back of growing domestic demand.

MIDF Research expects Malaysia’s gross domestic product to recover this year, with economic growth for 2021 expected at 7%.

“The recovery will be supported by growing domestic demand, as consumers and businesses continue to increase their spending. External demand will also support growth for exports, and the recovering domestic demand will contribute towards increasing imports.

“For 2020, we maintain our growth forecast at -4.8%, taking into account the stronger recovery in third-quarter 2020 and the impact of the targeted conditional (MCO) on fourth quarter 2020 growth, ” it said in a report.

Based on latest economic indicators, MIDF noted that activities have been recovering from the lows in second-quarter 2020.

However, the resurgence of Covid-19 cases had led the government to impose a targeted conditional MCO in most states during the final quarter. Consequently, MIDF has noted signs of a weaker recovery in fourth-quarter 2020.

While the current conditional MCO is less stringent than the MCO in March-April 2020 as business activities are allowed to operate according to set standard operating procedures, domestic spending activity would still be somewhat constrained by the movement restrictions.

“Although restrictions had been removed for some states, the situation still remains challenging as the number of new infections remained elevated and existing targeted conditional MCO has been extended into January 2021, particularly for Selangor, Kuala Lumpur and Sabah, ” it said.

Nonetheless, with the Malaysia Leading Index (LI) still growing higher than in 2019, MIDF said Malaysia’s economy is bound to continue on a recovery path in the months to come and into the first half of 2021.

The LI recorded a slower increase of 6.3% year-on-year (y-o-y) in October from 8.6% in the previous month. The index fell by -0.7% month-on-month (m-o-m) due to the decrease in the number of new companies registered and real imports of other basic precious and other non-ferrous metals.

Similar to the LI, the Coincident Index, which measures the current economic performance, also deteriorated in the same month, falling at a faster pace of -2.4% y-o-y (September 2020: -0.9%), which reflects the negative impacts of the new wave of Covid-19 outbreak.

However, Malaysia’s exports continued to be in positive territory in November at +4.3% y-o-y, higher than the tepid growth of +0.2% y-o-y observed in the preceding month.