BIMB Research sees 1Q GDP shrinking at slower pace of 0.6%


Police roadblocks to enforce the inter-state and inter-district travel bands during the MCO. Photo: The Star/Azhar Mahfof

KUALA LUMPUR: BIMB Securities Research expects the economy to have shrunk at a slower pace of 0.6% year-on-year in the first quarter (1Q 2021) compared with a contraction of 3.4% in the fourth quarter last year.

In its research note issued on Monday, it said a robust recovery in manufacturing and external trade activities alongside ongoing policy support are seen as key factors mitigating the impact of stricter containment measures and aiding the recovery last quarter.

The swift and sizeable economic policies as well as easy monetary conditions have been crucial in supporting the economy. These should continue together with sustained vigilance against a resurgence of infections, it said.

Hence, BIMB Research expected a smaller contraction despite the reimplementation of the Movement Control Order (MCO) 2.0 between Jan 13 and March 4.

Bank Negara Malaysia will release the 1Q GDP data at midday on Tuesday. RAM Ratings estimates Malaysia’s GDP to have contracted 2.1% in 1Q 2021 amid MCO 2.0.

"Nonetheless, this contraction - the fourth consecutive quarter of decline - is expected to be slightly less pronounced than the preceding quarters’ (4Q 2020: -3.4%; 3Q 2020: -2.7%)," RAM said.

However, a more upbeat BIMB Research said the domestic vaccination programme is expected to accelerate from mid-year onwards as more vaccines arrive, helping to lift sentiment and underpin the recovery.

The research houaw said a supportive and proactive fiscal policy remains critical to counter the severe economic loss wreaked by the pandemic. The balance of risks has tilted to firmer growth, albeit with remaining pockets of weakness, which can be addressed with targeted policy measures.

“Hence, barring an unforeseen risk of a major uncontrollable widespread of Covid-19 pandemic, we maintain our 2021 GDP growth projection of 5.1% in 2021 (2020: -5.6%) on the back a low base effect and a strong pickup in global demand induced by Covid-19 vaccination efforts, ” it said.

BIMB Research cited several points for the more upbeat GDP for 1Q, which included stronger industrial production index (IPI); exports growth; lower unemployment; slower contraction in the construction work and services index; wholesale & retail trade increased; and an improvement in consumer sentiment index.

The data included 1Q21 industrial production index (IPI) grew by 3.9% year-on-year (4Q20: -0.4%) amid stronger manufacturing growth (1Q21: +6.8; 4Q20: +2.8%) and modest contractions in mining (1Q21: -4.1%; 4Q20: -11.1%) and electricity (1Q21: -0.1%; 4Q20: -0.6%).

It pointed out export growth in 1Q21 picked up to +18.2% yoy (4Q20: +5.1%) while imports returned to positive growth of 10.8% yoy (4Q20: -4.5%) leaving a trade balance of +RM58.6bn or +58.6% yoy (4Q20: RM59.9bn or +62.7%).

Unemployment dipped to 4.7% in March 2021 and the first quarter 2021 remained unchanged at 4.8% (4Q20: 4.8%) amid a marginal drop in employment (1Q21: -0.05%; 4Q20: -0.6% yoy).

BIMB Research pointed out the labour force expanded (1Q21: +1.4%; 4Q20: +1.0% yoy) which led to the rise in numbers of unemployed slower (1Q2: +41.2% to 772k; 4Q20: +48.5% yoy to 761k).

The value of construction work done in 1Q20 contracted by 10.5% yoy (4Q20: -14.2%), amounting to RM31.4bn (4Q20: RM31.7bn).

Services index recorded a smaller contraction -3.6% yoy (4Q20: -7.1% y/y) in 1Q21 whilst total revenue of services sector in 1Q21 contracted by 2.1% yoy, an improvement from 5.1% decline in the previous quarter (3Q: -4.7%).

The volume index of wholesale & retail trade increased 1.5% yoy in 1Q21 (4Q20: - 1.3%).

The latest consumer sentiment index by MIER for 1Q21 rose by 13.7 points to 98.9, the highest reading in ten quarters, pointed to the better consumer confidence.

BIMB Research also said although Malaysia contended with a severe resurgence in Covid-19 cases that peaked in February and tighter restrictions that dampened the revival of domestic consumption, the economy benefitted from a relatively strong trade position.

Exports were supported by recovering global demand for manufactured goods and bolstered by a surge in global demand for semiconductors.

Sizeable gains in exports over the March quarter more than likely offset the softness in domestic consumption as producers benefitted from recovering global demand for manufactured goods, while the net position was bolstered by global demand for semiconductors and recovering commodity prices.

However, based on the strong performance of the manufacturing export sector and industrial production accompanied by rebound in distributive trade, Malaysia’s economy could surprise with a narrower decline of 0.6% yoy in 1Q21.

“We expect the economy to track a firmer recovery path from 2Q21 onwards due to the base effect and underpinned by sizeable fiscal measures and gradual reopening of the economy.

“Although we are concerned about the spread of new strains of Covid-19 and alarming rise in the number of infections locally and abroad, the base effect and strong exports could aid 2Q21 GDP growth to accelerate depending on the impact of the stimulus spending and a smooth vaccine roll-out.

“Furthermore, the fiscal stimulus would support growth recovery and prevent further setbacks. This will be further bolstered by the wider progress of Covid-19 vaccination, the continuation of mega infrastructure projects and an improved consumer sentiment, ” it said.

BIMB Research said overall, the 2021 growth outlook has improved for the Malaysia economy, on the back of supportive domestic policies and sound macro fundamentals, but the recovery remains uneven.

“The labour market picture is clearly improving but not quite back to pre-Covid business-as-usual. The latest tightening of measures (under MCO 3.0) and lingering uncertainties are expected to weigh on the economy in the near term but not derail the recovery the positive growth trajectory that is projected in the coming quarters. The projected GDP expansion from 2Q21 onwards is also due to low base effects.

“The impact of MCO 3.0 is expected to be less severe with most key economic sectors allowed to operate and measures in place to mitigate negative effects, ” it said.

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BIMB Securities Research , GDP , RAM Ratings , MCO

   

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