KUALA LUMPUR: The sluggish pace of the vaccination programme, coupled with the renewed movement control order (MCO 3.0) in Malaysia, are likely to have prolonged scarring effects on economic and business activities.
Socio-Economic Research Centre executive director Lee Heng Guie (pic) cautioned that the first quarter of this year is expected to have a sluggish quarterly growth, adding that the national immunisation programme is key to lift the sustained revival of consumer sentiment.
“The country’s immunisation programme is a slow pace of shots which puts recovery at risk.
“I do not think that recovery would be stalled but despite expectations of a stronger economic rebound in the second quarter of 2021, the growth could be slower depending on the extension of the movement control order, ” he said at a virtual media briefing.
Should there be a slower pace of vaccination rollout and rising Covid-19 cases in the country, Lee forecast gross domestic product (GDP) growth for this year to be at 4%, lower than Bank Negara’s projection of 6% to 7.5%.
“The MCO 3.0 covers several districts in Selangor, which accounts for about 21.9% of total national GDP. Other states like Johor and Kelantan are also under the MCO.
“All these scarring effects will continue as daily new cases continue to rise above 3,000. With the MCO 3.0, which is less restrictive in nature, we might see some impact on the sentiment side in the second quarter of 2021.
“By the end of May or June, hopefully everything will be back to recovery movement control order (RMCO), ” he said.
To date, about 1.9% of the Malaysian population have completed two doses of the vaccine, Lee noted.
Despite reiterating that the worst is over for Malaysia compared with last year, he said there is an uneven performance in the services sub-sector in the country, given the continued movement restrictions.
“The main headwind is strict interstate travel restrictions; the reopening of the border will likely be a gradual process towards year-end and hence, the persistent weakness in tourism, aviation as well as retail and hospitality sectors will hold back the recovery of the overall services sector, ” Lee added.
Meanwhile, he pointed out that retail sales declined for five months in a row since October 2020 due to the reimposition of MCO 2.0 and the subsequent conditional movement control order (CMCO) amid weaker consumer confidence.
Retail sales typically fell in all types of specialised stores, with the exception of food, beverages and tobacco as well as information and communication equipment.
From second-quarter 2021 onwards, Lee anticipates that sluggish growth from the first-quarter 2021 could turn to positive growth depending on the speed of the immunisation programme.
On a positive note, he expects exports to increase 9% this year on the back of sustained demand for semiconductors and machinery equipment in line with the increase in digitalisation and 5G technology development
However, Lee warned that a slow and moderate recovery in the labour market and continued high loss of employment could cap consumer spending.
“In addition, the wearing-off effect of consumption-fuelled catalysts would pull the brake on consumer spending towards year-end and in 2022, ” he said.
He expects unemployment rate to gradually improve to around 4.5% by year-end, much higher than the government’s target of 3.5%.
In the January-February 2021 period, the unemployment rate was hovering between 4.8% and 4.9%.