PETALING JAYA: While there is some softening in economic activity, the current movement control order (MCO 3.0), along with the National Recovery Plan (NRP), should see the country on the path to recovery in the second half of the year.
RHB Bank Bhd group chief economist and head, market research, Dr Sailesh K. Jha said Malaysia’s fiscal, monetary and Covid-19 policy frameworks are calibrated appropriately to provide a floor on economic activity in case any downside risks to growth emerge in the next few quarters.
“In our view, the MCO 3.0 along with the NRP demonstrates Malaysia’s sound economic policy and institutional framework, which will help the country recover in the second half of 2021 and continue to do so in 2022, ” he said in the bank’s latest Global Economics and Market Strategy report.
Explaining to StarBiz, Sailesh said while economic activity has eased, it is not collapsing based on its data as of early July.
And despite organisations like the World Bank slashing Malaysia’s GDP growth projection, he said the bank is maintaining its 2021 and 2022 gross domestic product (GDP) growth forecast of 5.4% year-on-year (y-o-y) and 5.5%, respectively.
“High frequency data suggest that economic activity is closer to MCO 2.0 rather than MCO 1.0 levels.
“In our view, the government’s continued fiscal support, monetary easing and accelerating Covid-19 vaccination path has been instrumental in moderating the decline in economic activity in the late second quarter of 2021 and early third quarter of 2021, ” he added.
He believes the robust institutional framework to support recent policy initiatives is commendable, given the plethora of risks to the economy and financial markets that MCO 3.0 and NRP has induced.
“The counter-factual, as exemplified in some emerging markets in Latin America and Africa, is a situation of weak governance and institutions which has led to policy paralysis and impending downside risks to growth and financial markets.
“This isn’t the case in Malaysia, where we expect second-quarter 2021 GDP growth to accelerate to 16.8% y-o-y from -0.5% in the first quarter of 2021.
“In the second half of 2021, we expect GDP growth to continue to recover at around 3%, on the back of a recovery in private consumption and strong export growth and continued policy support, ” the bank said.
Its reasons in supporting this view include the easing of lockdown measures in the early part of the second half of 2021, which will unleash pent-up demand in the third quarter of 2021 and robust global recovery, which will boost exports and feed into improved labour market conditions.
It also noted that consumers’ and businesses’ adaptability to the pandemic situation has strengthened, and policy support from both the fiscal and monetary authorities will provide a floor on economic activity.
In addition, the Covid-19 vaccination rate is picking up significantly and restrictions may gradually be eased in the third quarter of 2021 and induce stronger growth momentum in the second half of 2021.
“As a result, while second-quarter 2021 GDP growth is projected to contract quarter-on-quarter, the rebound is likely to be stronger in the third quarter of 2021.
“Potentially, June and the first half of July could be the slowest for economic activity before a sustained rebound materialises, ” the bank added.
On the fiscal policy front, the recent RM10bil direct fiscal injection under the June Pemulih package, above the RM16bil stimulus announced so far, is timely and supportive of consumer spending and small to medium enterprises’ activities.
On the monetary policy front, it said that besides large overnight policy interest cuts since 2020, Bank Negara has continued to inject liquidity into the financial markets as well as providing guidance to banks to provide loan moratoriums.
It also noted that large scale defaults among corporates and consumers haven’t arisen so far.