KUALA LUMPUR: Fitch Solutions halved its real GDP outlook for Malaysia to 4.9% from 10% previously due to the latest Covid-19 outbreak and the lockdown measures taken to curb it.
It said on Monday it expects the lockdown to result in a resurgence in unemployment, which would significantly dim the prospects for a recovery in domestic demand.
“With government consumption unlikely to provide meaningful support, net exports will prove to be the most significant growth driver once again in 2021, with imports likely to fall materially amid lower demand, ” it said.
Fitch Solutions said the lowering of its forecast was the downside risks it had pointed out in its comprehensive update on the growth, fiscal and monetary outlooks for Malaysia after the government had implemented lockdown measures to combat the third wave of Covid-19 infections.
“We expect a further extension of lockdown measures, and do not rule out further downward revisions to our growth forecast over the coming months, ” it said.
It said this would in turn result in even more unused capacity and negatively affect the investment outlook. The key source of support will once again be net exports, driven primarily by shrinking imports as demand falls.
Government consumption will likely remain subdued despite the circumstances, due to the severe fiscal constraints the authorities face, it said.
Meanwhile, Maybank Investment Bank Research maintained its 2021 real GDP growth forecasts of +5.1% (2020: -5.6%).
“Official growth forecast of between +6.5% and +7.5% (as per Budget 2021 in Nov 2020) is under review ahead of Bank Negara Malaysia’s Annual Report release in the final week of March 2021.
“Consensus view is the economy is expected to rebound this year but the issue is speed and strength of the recovery as we see the outlook is a function of pandemic, policy and politics which are at work, ” it said.
Maybank Research said the recovery was premised on global economic and trade rebounds; continued -and targeted -policy stimulus and supports; and the less restrictive MCO2.0 vs MCO1.0.
However, it said downsides and wildcards include the still evolving kinetic of the pandemic; progress and success of vaccination; “scarring effects” (for example job market; business insolvencies; poverty); and domestic politics.
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