On the path to V-shaped recovery

KUALA LUMPUR: Malaysia’s real gross domestic product (GDP) growth for 2021 is estimated at 4%, below the average 4.9% during the pre-Covid-19 period, but the economy is clearly on the path of a V-shaped recovery, said the Malaysian Institute of Economic Research (MIER).

In its latest Malaysian Economic Outlook, Third Quarter 2021 report, MIER said the estimated GDP is determined based on this year’s macroeconomic performance, unfavourable developments and challenges which have affected the Malaysian economy.

Nevertheless, real GDP growth is expected to pick up strongly to record between 5.5% and 6.5% in 2022, indicating that all resources are likely to be fully utilised, especially towards the latter part of next year.

MIER said there are clear signs of V-shaped recovery, especially with expanding aggregate domestic demand, comprising both private consumption and investment, continuing strong growth in net exports of goods and services, increasing net international reserves of Bank Negara, and increasing inflows of both direct and portfolio investments by foreign investors.

It said that private consumption and private investment are expected to continue gaining momentum in the coming quarters as a result of the planned reopening of the economy in the fourth quarter of 2021 and rising imports of both intermediate and capital goods.

“However, lagging indicators need to be closely monitored, especially with the rising number of non-performing loans, slowing vacancies and job placement rates, rising property market overhang, and weaknesses in financial market conditions,” said MIER, which is an independent, non-profit organisation.

It said Malaysia is experiencing the so-called commodity-currency shocks as prices of commodity exports are surging while the ringgit exchange rate, as measured by the nominal effective exchange rate, remains weak.

“Consequently, macro weaknesses are expected to persist and it includes continuing net outflows of portfolio and other investments by residents, rising cost of living, elevated public sector and household debts, and increased likelihood of further downgrading of ratings for Malaysia’s sovereign debt,” it said.The fiscal deficit of the federal government’s financial position is projected to widen further as it moves closer to 6% of nominal GDP in 2021 despite expected improvement in the overall economy this year.

It is still below the highest ratio of 6.5% of GDP, recorded in 2009 when the country was hit hard by the global economic and financial crisis, said MEIR.

As at end-June 2021, total outstanding federal government debt continues to accumulate, totalling RM958.4bil, an equivalent of 61.1% of GDP, well above the current statutory debt-to-GDP limit of 60%.

A hike in the United States interest rates later this year or early 2022 could possibly see contagion in monetary policy actions, pushing interest rates higher on the international front, it said.

“If Malaysia remains behind the curve, there will be continued market pressures on the ringgit exchange rate and potentially large reserve losses or sharp ringgit depreciation,” it said — Bernama.

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