Better quarters ahead

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PETALING JAYA: Bank Negara’s growth forecast for 2021, which was reaffirmed recently despite the introduction of stricter movement restrictions, remains achievable although economists largely predict an expansion closer to the lower-end of the central bank’s 6% to 7.5% forecast.

Judging from the impact caused by the second round of movement control order (MCO 2.0) that began on Jan 13 and lasted for over seven weeks, some experts think the MCO 3.0 would also have a moderate impact on the pace of economic recovery.

The Malaysian economy only contracted marginally by 0.5% year-on-year in the first quarter of 2021 (Q1). This was the smallest contraction since the pandemic struck.

On the other hand, on a quarter-on-quarter seasonally adjusted basis, the economy grew 2.7% in Q1.

Standard Chartered Global Research and MIDF Research have raised their forecast for 2021, following the announcement of the gross domestic product (GDP) results on May 11.

“Given still-strong external demand and the diminishing effect of mobility measures, we upgrade our 2021 GDP growth forecast to 6.3% from 5.7%, ” according to Standard Chartered Global Research.

Meanwhile, MIDF Research has revised its growth forecast upward to 6.2% from the 5.4% initially estimated.

“Previously, we had downgraded our forecast on the fear of a possible adverse impact from MCO 2.0 and also renewed restrictions in key countries.

“However, the recent performance of the GDP not only in Malaysia but other key countries suggests that the impact was less severe than anticipated, as almost all economic sectors are still allowed to operate and consumers are likely to have shifted part of their spending or purchases online in the event of movement restrictions.

“On the imposition of the MCO 3.0, we expect it to have more or less the same impact as the MCO 2.0 due to similar restrictions.

“Furthermore, strong external demand will also continue to support growth significantly in which we had recently revised upward as well, ” the research house said in a note yesterday.

PublicInvest Research also expects the Malaysian economy to rebound by 6.2% this year, following a 5.6% contraction in 2020.

It said that 2021 is expected to be a better year for Malaysia, owing to concerted efforts to boost output through generous fiscal stimulus packages which have been rolled out continuously since last year.

The low interest rate environment, which has been maintained since 2020, is another lever of growth for the economy.

“The strong turnaround in exports, thanks to the revival in global demand, global pandemic condition, normalisation in supply chain and trade network and rapid cellular network migration towards 5G is another growth stimulant for the year.

“Growth will also gain from a low base effect following output that was severely hit for the most part of last year due to the global Covid-19 pandemic, ” PublicInvest Research said in a note.

However, the research house also pointed out that the economy faced several risks that may dampen its recovery.

Among the risks are the delayed recovery of contact-sensitive industries due to the resurgence in Covid-19 infections, shortages of vaccines and a low take up by Malaysians as well as poor execution of the vaccination drive nationwide.

“Opec+ could in turn dial-back on their plan to increase output, especially if oil prices remain lethargic, where this may hurt major oil producers in the region, especially Malaysia, Indonesia and Thailand.

“The impending start of the US-China second trade talk is another concern, as it could dampen exports which were just about to recover, although the probability is low for now, thanks to the US that is still occupied with Covid-19 headwinds, ” stated PublicInvest Research.

Not all economists share optimism on the outlook for the Malaysian economy, however.

Fitch Solutions, for example, said that the country’s growth prospects this year have been dimmed by yet another MCO.

It expects the economy to grow by 4.9%, much lower than Bank Negara’s lower-end target of 6%.

Fitch Solutions said the latest movement restrictions would likely have a severe negative impact on employment and result in yet more spare capacity, weighing on 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.