Economists had earlier forecast that there would be a V-shape economic recovery underpinned by the global economic growth, pick-up in the immunisation programme and improvement in consumer spending.
Malaysia had faced several major economic crises such as the Asian Financial Crisis in 1997, the dotCom Bubble in 2000 and the Global Financial Crisis in 2008.
One common feature among the crises was that they showed a V-shape economic recovery, where a sharp decline in the economy was immediately followed by a rapid recovery within three to five quarters.
Due to the Covid-19 pandemic and headwinds, Malaysia’s gross domestic product (GDP) growth is projected to be lower at between 3% and 4% from an earlier estimate of between 6% and 7.5% year-on-year (y-o-y).
In the second quarter, the GDP grew 16.1% y-o-y, mainly due to the low base effect following four consecutive quarters of contraction.
According to Socio-Economic Research Centre executive director Lee Heng Guie, (pic below) the shape of economic recovery would depend on the second-half performance, especially from the July to September period.
He told StarBiz that Q3 holds the key to a gradual resumption of economic and business activities due to the reopening of more economic and social sectors.
“While the increasing rate of vaccinations will support the normalcy of activities, the virus risk can still pose a threat to lives and the economy.
“Therefore, there need to be continued pandemic mitigation and surveillance, including adherence to standard operating procedures to ensure a sustained economic and business revival.
“A slew of key economic data namely exports, industrial output, wholesale and retail sales for July has shown a sharp pullback in growth or a decline in consumer spending, reflecting the scarring economic effects from the movement control order 3.0 which started in June,” he added.
The uptick in unemployment rate to 4.8% in July also weighed on the consumer sentiment, he said.
There are indications that the overall economic output, as measured by the GDP, would be subdued in Q3 before recovering to positive growth in the following quarter.
Lee, however, is maintaining his full-year 2021’s GDP growth estimate at 4% amid the considerable uncertainties.
Besides continued exports expansion, albeit slower in the second half of the year as the low base effect dissipates, he said the manufacturing and services sectors also hold the key underpinning the economic rebound.
“Hopes are pinning on Budget 2022 to craft a swift economic recovery plan for generating growth, enhancing resilience, revitalising private investment, creating jobs, reskilling and upskilling of manpower,” he pointed out.
Despite the projected slump in the third quarter, RAM Rating Services Bhd senior economist Woon Khai Jhek (pic below) envisaged that the country’s economy could stage a sharp recovery in the fourth quarter.
“This is due to the rapid pace of vaccination which would enable the reopening of most sectors while reducing the likelihood of recurring lockdowns.
“Around 75% of the adult population have been fully vaccinated as of Sept 14, while the Klang Valley, which contributes around 40% of national GDP, has already seen full vaccination of its adult population.
“Most states and federal territories have also transitioned out of the strictest phase one of the National Recovery Plan (NRP), with only Johor and Kedah (13% of national GDP) still under phase one,” he noted.
That said, Woon said the overall output level in Q4 21 is expected to remain below the pre-pandemic trend.
“While we expect the unemployment rate to gradually improve, we project unemployment to stay elevated at 4.3% by end-2021.
“This is substantially above the long-run rate of 3.0%-3.5%,” he noted.
Malaysia’s economic recovery from the pandemic has so far been uneven, with the overall economic output undergoing two major dips.
The first was in Q2 20 and second, in June-August 2021 due to the strict MCO 3.0.
This year was initially anticipated to be the year of recovery, he said, adding that riding on the cautious reopening of the economy in the second half.
However, the resurgences of infections and tightening of restrictions under MCO 3.0 and the strictest Phase 1 lockdown under the NRP have set back the economic recovery this year.
The tougher restrictions would substantially weigh on the economic output this year, particularly in Q3 21, he said.
Woon’s full-year GDP forecast for 2021 stands at 3.8%, compared with a contraction of 5.6% last year.
Other possible headwinds that would impact the economy includes the highly infectious Delta variant and other possible variants emerging in the future that can still put the country’s healthcare system at risk.
This could dull consumer sentiment and household spending, he said.
Another headwind is the pervasive global trade disruption due to the Covid-19 infections caused by the Delta variant.
He noted that exports have been a key driver to Malaysia’s recovery so far this year.
“The risk of supply chain disruptions has been on the rise of late. The resurgence of Covid-19 infections caused by Delta variant has triggered new lockdowns and
delayed reopening of economies among Malaysia’s key trade partners.
“This could disrupt the sourcing of production inputs and Malaysian manufacturers’ ability to meet export demand and fulfill orders.
“We are also monitoring the rising raw material prices and soaring maritime shipping costs, which may fuel potentially disruptive inflationary pressure,” Woon added.
Economists have concurred that the Delta variant has impacted the regional economies leading to their Manufacturing Purchasing Managers’ (PMI) Index, a measure of the prevailing direction of economic trends in manufacturing, being impacted due to disruptions in the manufacturing and supply activities.
Meanwhile, Centre for Market Education CEO and Institute for Democracy and Economic Affairs (Ideas) senior fellow Carmelo Ferlito (pic below) said the economy could expect a decent rebound in Q4 21 if there were no lockdowns by the government.
He welcomes the less tense climate between the government and opposition, which could translate into institutional reforms and a cooperative Budget 2022.
“We should focus more on a sound recovery for 2022.
“Also, we need to closely monitor inflation, which will be on the rise in the post-Covid-19 recovery, and has been created by the lockdowns (supply-side shocks) and the extensive fiscal and monetary policies. If we don’t control it, it will undermine the economic recovery,” he said.