Slight dip in Q1 GDP likely

GDP chts

PETALING JAYA: Green shoots have been increasingly visible in the Malaysian economy, especially in the first three months of the year, led by a recovery in optimism and demand.

While the economy is not out of the woods yet, macroeconomic data have indicated that the country is continuously moving away from the “painful effects” of Covid-19 in 2020.

The Consumer Sentiment Index, published by the Malaysian Institute of Economic Research (MIER), has increased by 13.7 points to 98.9 points in the first quarter of 2021 (Q1’21) – its highest reading since Q3’18.

The Business Confidence Index, which slipped by 3.6 points to 111.8 points in Q1’21, remained well above the optimism threshold of 100 points for two consecutive quarters.

In addition, businesses are expecting a positive outlook in the next three months and capital investments are on an upward trend, according to MIER.

For Q1’21, economists are expecting Malaysia to post its smallest quarterly gross domestic product (GDP) contraction since Covid-19 struck, before embarking on a positive growth trend in the coming quarters – assuming a stricter movement control order (MCO) is not imposed.

A survey by Bloomberg estimated a contraction of 0.9% year-on-year (y-o-y) from a negative growth of 3.4% in Q4’20.

Bank Negara will announce the first-quarter GDP data today.

Speaking with StarBiz, Socio-Economic Research Centre (SERC) executive director Lee Heng Guie (pic above) said Malaysia is likely to register a smaller GDP decline of 0.5% in Q1’21, compared with his estimate of -1.5%.

Lee said the smaller decline indicated the country’s strong exports and the better-than-expected output growth in the export-oriented manufacturing industries such as electronics and electrical products, rubber products, food-based and transport equipment.

“Discretionary consumer spending is recovering, albeit amid the prolonged pandemic and persistently high number of new infection cases may temper consumer sentiment ahead.

“However, the services sector will continue to decline by an estimated 2.2% in Q1’21, due to continued scarring effects from movement restrictions in domestic travel, tourism, and retail related subsectors.

“We expect the continued scarring effects from MCO 3.0 and the prolonged pandemic scare amid the extreme low base effect will help to lift higher year-on-year GDP growth in Q2’21, ” he said.

Nevertheless, Lee added that if consumer and business sentiment was dented by the longer-than-expected targeted MCO 3.0 in major states, including stricter ban on inter-state and inter-district travel, it may temper the higher growth rebound in Q2’21, especially for the services sector.

Alliance Bank chief economist Manokaran Mottain (pic above) expected a 1% contraction mainly due to the escalation of Covid-19 cases and the re-imposition of MCO 2.0 that began on Jan 13.

He also said the services and tourism-related sectors remained challenging amid the movement restriction measures, and the factors have affected overall economic recovery.

“Nevertheless, the economic growth in Q1’21 has been supported by strong external demand, especially for Malaysia’s manufacturing products such as in the electrical and electronics segment.

“The rising commodity prices also have a spillover effect on higher production and export values, ” he said.

Meanwhile, CGS-CIMB Research said that solid manufacturing expansion has been key to the increasing green shoots in industrial activity.

In March 2021, the Industrial Production Index (IPI) grew at its strongest rate since July 2013, lifting the quarterly IPI growth to 3.9% y-o-y in Q1’21.

The research house, however, pointed out that the uneven recovery in the services sector persists.

“The impact of MCO 2.0 led to a 0.3% quarter-on-quarter (q-o-q) decline in the index of services, as declines in distributive trade, food and beverage and accommodation (-1.5% q-o-q) and transport and storage (-3.2% q-o-q), as well as arts, entertainment and recreation (-19% q-o-q), outweighed gains in finance and insurance (4.4% q-o-q) and information and communication (3.3% q-o-q).

“We forecast a narrowing of the first quarter GDP decline to 0.2% y-o-y underpinned by manufacturing recovery and diminishing drag on services and construction, ” said CGS-CIMB in a note last Friday.

Against the backdrop of a recovering economy, CGS-CIMB research highlighted that the national unemployment rate marginally slipped to 4.7% in March.

However, it cautioned that near-term gains for the labour market may be stymied by the recently-implemented MCO 3.0, which covers commercial and employment hubs, especially in Kuala Lumpur and Selangor.

SERC’s Lee believed that the uneven growth recovery in economic sectors will continue to temper the employment outlook.

“The continued scarring effects from the MCO 3.0 and rising infection cases, if persisted, may weaken the labour market condition.

“The unemployment rate will gradually improve to an estimated 4.5% at end-December 2021, translating to nearly 720,000 unemployed persons, about 40% higher than nearly 520,000 unemployed persons pre-Covid-19, ” he said.

Meanwhile, Alliance Bank’s Manokaran expected the domestic labour market condition to gradually recover, despite the re-imposition of MCO 3.0 as most economic sectors are allowed to operate.

“However, we also anticipate changes in business structures amid more automation or digitalisation in place post-pandemic, and the labour market will not be excluded.

“Reskilling and upskilling of existing workforce is of utmost importance for Malaysia’s economy to sustain income and well-being of the people, ” Manokaran said.

Article type: metered
User Type: anonymous web
User Status:
Campaign ID: 46
Cxense type: free
User access status: 3

Malaysia , GDP , Lee Heng Guie , Manokaran Mottain , exports , output ,


Next In Business News

Wall St week ahead: Fed meeting looms for stocks
After the pandemic, a wave of spending by older consumers
Out-of-control shipping costs fire up prices from coffee to toys
G7 leaders commit to raise climate finance contributions
G7 rivals China with grand infrastructure plan
FMM: RM200b stimulus plan needed for SME manufacturers
No trading for KLTM next week
CPO futures likely to experience technical correction next week
Essential economic contributors must be protected
Oil price hits multi-year highs in third weekly gain on demand recovery

Stories You'll Enjoy