PETALING JAYA: While Covid-19 remains a key risk that clouds the economic outlook, the Malaysian economy may finally return to strong growth in the second quarter (Q2) of 2021.
This is after it had gone through four consecutive quarters of economic contraction previously.
Encouraging economic indicators, in the April to June period, such as the industrial production and exports, apart from the low-base effect, are expected to boost second-quarter gross domestic product (GDP).
However, the country’s continued movement restrictions will remain a key drag to the growth momentum as business supply chains and consumer-appetite take a major hit.
“The outlook for the second half of 2021 will depend on the vaccination speed, management of Covid-19 cases, reopening of the economy, stimulus measures and domestic stability,” according to AmBank Research.
Bloomberg’s poll among economists has a median GDP growth forecast of 12.7% year-on-year (y-o-y) for Q2 of 2021. The official data will be announced tomorrow.
In the first quarter of the year, GDP recorded a better-than-expected performance with a contraction of 0.5%, despite imposition of the second movement control order (MCO) on Jan 13.
Speaking with StarBiz, Socio-Economic Research Centre executive director Lee Heng Guie was more upbeat than the market consensus as he predicted GDP growth of 16.8% in Q2.
Lee Heng Guie SERC
This is amid the economic scarring effects in June due to the full MCO.
Buoyant exports, a strong turnaround in the mining, manufacturing and construction sectors as well as an improvement in the services sector would underpin a strong rebound in the second-quarter GDP, he said.
The low-base effect, considering the economy tumbled by 17.2% in the same quarter of last year, would also turbo-boost growth in the April to June period.
Despite the projected strong rebound, Lee raised concern about the economic momentum post the second quarter.
He pointed out that households and businesses have turned more cautious in June and the third quarter, with the Malaysian economy hitting a temporary speed bump due to the prolonged pandemic and deeper economic scarring effects caused by strict containment measures.
He also said the continued “open and shut” Covid-19 measures would leave a larger dent in the production and demand of the retail, food, accommodation and transportation, especially those related to tourism, in the July and August period.
“With the favourable low base effect in Q2 wearing off and economic activities normalise, the July to September period is the deciding factor to ascertain the impact of the prolonged restrictive containment measures and the household’s heightened concerns about the resurgence of new virus variants.
“The inflection point is August, depending on the achievement of the targeted vaccination rate of between 40% and 60% of the total population.
“It also depends on the sooner-than-expected transition to phases two, three and four of the National Recovery Plan, and safer reopening of both economic and social sectors with higher manpower capacity tied to the number of workers vaccinated,” Lee said.
National recovery plans
Lee maintained his GDP growth forecasts for 2021 and 2022 at 4% and 5.2% respectively.
AmBank Research, in a note issued yesterday, said the second-quarter GDP could grow between 11% and 13%.
“With Q2’21 industrial production averaging at 25.9% year-on-year (y-o-y) (Q1’21: 4% y-o-y) and exports at 44% y-o-y (Q1’21: 18% y-o-y), they suggest that the second quarter GDP should turn around from the negative growth trajectory for the past four quarters for the first time.
“Besides, the low base provides a big lift to GDP growth,” it said.
For the full year, the research house has maintained its growth forecast for the Malaysian economy at 4% to 4.5%.
“The outlook for the second half of 2021 will depend on the vaccination speed, management of Covid-19 cases, reopening of the economy, stimulus measures and domestic stability,” according to AmBank Research.
Meanwhile, TA Securities Research noted that the significant impact from the national lockdown would be more on weaker consumer spending and the spillover effect on the services industry.
Personal spending and services sector contributed about 61% and 57.3% to the economy in Q1 of 2021, respectively.
“With the global manufacturing Purchasing Managers’ Index (PMI) eased slightly in July and the emergence of new variants, such as the Delta variant, we expect firms to face supply constraints, shortage of materials, and rising input costs.
“In July, the latest PMI reading pointed to a steep decline in operating conditions as both production levels and new orders moderated further.
“However, we expect the encouraging progress made in the National Covid-19 Immunisation Programme or PICK and gradual reopening of economies will support manufacturing activities to grow as demand is expected to recover, especially in the final quarter of this year,” it said.